Mirae Asset: "Daily Covered Call Strategy Delivers Results Even in Rising Markets"

The 'TIGER US S&P500 Target Daily Covered Call ETF' and the 'TIGER US Nasdaq100 Target Daily Covered Call ETF' have experienced significant growth just over a year after their listing. The combined net asset value of the two ETFs has surpassed 1.1 trillion KRW.

Yoon Byungho, Head of Strategic ETF Management at Mirae Asset Global Investments, stated, "The Target Daily Covered Call ETFs demonstrated their value in April, when the US stock market plunged and then recovered its losses."

On August 12, during a webinar commemorating the one-year anniversary of the listing of the 'TIGER Target Daily Covered Call ETFs,' Yoon introduced the strategy, saying, "The simplest and most sustainable way to invest in the growing US market while stably achieving the target distribution rate is through the 'Target Daily Covered Call' strategy."

The covered call strategy involves holding stocks and selling call options. Depending on which options are sold, the strategy can be categorized as either a monthly or daily covered call. The daily covered call strategy entails selling options that expire the next day, on a daily basis. The TIGER S&P500 Daily Covered Call ETF holds a stock portfolio that tracks the S&P500 and sells S&P500 daily options every day.

Yoon explained, "We have addressed the limitations of traditional covered call strategies, which typically fail to keep up with rising markets." He added, "Since its listing in May last year, the TIGER US S&P500 Target Daily Covered Call ETF has risen by 21.4%." Considering that the TIGER US S&P500 ETF rose 23% over the same period, the difference in returns was not significant. The target distribution rate for the TIGER US S&P500 Target Daily Covered Call ETF is 10% per annum.

The TIGER US Nasdaq100 Target Daily Covered Call ETF, which was listed in June last year, rose by 18% through July this year. The TIGER US Nasdaq ETF increased by 20% during the same period. The actual distribution rate for the TIGER US Nasdaq100 Target Daily Covered Call ETF reached 14.93%.

Yoon noted, "Because we sell options every day, the premiums from option sales also increase." He explained, "By selling daily options, the increased option premiums allow us to pay out distributions at the level of traditional covered call strategies, even while selling fewer options." He further added, "Since we sell fewer options, the participation rate in market gains is higher when the market rises. By selling options on about 10% of the portfolio and leaving the remaining 90%, we can capture market performance as it rises."

Yoon stated, "We have internally deliberated and analyzed various approaches to adjusting the proportion of options sold." He continued, "Although we examined optimal timing using various derivative indicators such as volatility and AI models, there was no model that could be applied stably over the long term."

He added, "On days following increased volatility, technical rebounds often recover the previous day's losses. Therefore, if we increase the proportion of options sold solely based on heightened volatility, there is a risk of missing profit opportunities during rebound markets."

He cautioned, "A distribution rate that exceeds the growth of the underlying index is not advantageous for investors over the long term." He explained, "While long-term performance may improve as the global economy strengthens, if this is not the case, a persistently high distribution rate could actually be detrimental." He also promised, "The TIGER Target Daily Covered Call ETFs will maintain an appropriate distribution rate that considers long-term expected returns, so that distributions can grow over time. We will demonstrate growth in distributions that investors can truly experience."

This content was produced with the assistance of AI translation services.