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ETFs that use covered call option strategies to generate cash and pay big yields have become hugely popular. My database includes more than 100 funds, with new ones launching every week. Fund sponsors continue to develop new strategies to counter the one big negative of covered call trading. I have found one ETF that has an answer for that negative.

The covered call options strategy generates income by selling call options backed by the underlying assets. Selling calls puts a cap on the gains in the underlying that can be realized. In a rising market, using call selling will cap the gains compared to just owning the underlying asset.

As a result, covered call ETFs can underperform a lot during a strong bull market. In a flat-to-down market, the option strategy ETFs should do better than the underlying securities.

Launched last July, the Kurv Technology Titans Select ETF (KQQQ) employs an option strategy that should provide great returns through all market conditions. The Tech Titans in the name refers to the plan that the ETF owns the Nasdaq 100 stocks minus the non-tech companies. This is a tech stock focused ETF.

The difference comes with the call option strategy. In December, I spent an hour on the phone with Kurv CEO Howard Chan, letting him explain the strategy. I will do my best to make it clear here…

The KQQQ goal is to profit from the positive momentum of high-momentum tech stocks. The benefits of momentum investing showed during the significant tech stock gains in 2023 and 2024. 

In a strong momentum market, KQQQ will keep the momentum-driven stocks uncovered and sell call options on the lower momentum stocks in the portfolio. This option strategy aims to pay about a 7% yield with monthly dividends of $0.15 per share.

CEO Chan noted that the momentum trade takes vacations and the fund managers would, at those times, sell calls on more of the portfolio holdings. They applied that tactic for the April dividend. Investors earned a $0.25 per share dividend on April 24, up 66% from the rate paid for the previous eight months. The higher dividend gives KQQQ a 14% current yield.

I expect, without any proof, that KQQQ will pay $0.24 for May and June. Then they can reevaluate the market for the third quarter.

This new ETF should capture the bulk of tech stock gains in bull markets and shift to a high dividend yield during corrections and flat markets.

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