High-Yield Dividend ETFs: The Call Option Cash Machine (Pros & Cons)
- Jeff Sonnier
- Oct 4
- 3 min read
Ever dreamed of getting paid every month just for holding an ETF?
Welcome to the world of covered call ETFs — the financial equivalent of renting out your stocks for a cheeky bit of extra cash. Think of it as turning your portfolio into an Airbnb: you still own the place, but someone else pays for the privilege of using it (in this case, via call options).
From YieldMax ETFs in the US to their UCITS cousins on the London Stock Exchange (like QYLD.L or YMAG.L), these funds promise fat dividends — sometimes north of 10%, even 50% annualised — and they pay out monthly. Sounds too good to be true? Let’s break it down.
🎯 The Pros of Covered Call ETFs
1. High Monthly Income
These funds are income beasts. While the S&P 500 drips out ~1.5% annually, ETFs like QYLD.L can pump out ~12%+ yields, paid monthly.
Example: QYLD.L recently handed out £0.116 per share per month.
Perfect if you want a cash flow without constantly selling shares.
2. Cushion in Sideways or Down Markets
Markets flat? Even dipping a little? No problem. The options premiums they collect provide a buffer.
Example: Nasdaq falls slightly → QYLD.L’s income softens the blow.
It’s not bulletproof, but it takes the sting out of sideways markets.
3. Tax-Friendly (Sometimes)
In the UK, UCITS versions often carry Reporting Fund status, making distributions simpler to declare. Less paperwork = happier trader. (Still, ask your tax advisor before you pop the champagne.)
4. Diversification with Income
Unlike betting the farm on one stock, covered call ETFs spread risk across indices.
Example: YMAG.L taps into Big Tech (think Tesla, NVIDIA) — with juicy yields on top.
5. Consistent Cash Flow
Monthly payouts = peace of mind for retirees, side hustlers, or anyone who prefers steady cheques over market guesswork.
⚠️ The Cons of Covered Call ETFs
1. Capped Upside
You’re trading growth for income. If markets rip 20% higher, you don’t get that rocket ride — your upside’s been sold off at the strike price.
2. Unpredictable Dividends
Premiums depend on volatility. Less volatility = smaller premiums = thinner payouts.
Example: MSTP.L (based on MicroStrategy) can swing from mega yields (~50%) to much leaner months depending on Bitcoin’s mood swings.
3. Lagging in Bull Markets
In a raging bull market, these ETFs look sluggish. They’re not built to race — they’re built to grind out cash.
4. Higher Fees
Option management isn’t free. QYLD.L charges ~0.6%, compared to ~0.1% for a plain vanilla ETF. Not devastating when yields are double-digits, but worth noting.
5. Strategy and Market Risks
Covered calls struggle in extreme bear markets — the premiums can’t fully offset falling stock prices. And single-stock ETFs like MSTP.L? They’re wild rides compared to diversified funds.
⚖️ The Bottom Line
Covered call ETFs are income machines with trade-offs.
Great for steady monthly payouts.
Not great if you want max growth in bull markets.
Riskier if you chase the single-stock versions.
If you’re a retiree or income-seeker, they can fit neatly into your portfolio. If you’re a growth junkie? Probably not.
As always: diversify, read the prospectus, and don’t bet the house on one strategy.
At CLiK, we break this stuff down so you can decide what suits your goals — no hype, no secret handshakes, no shouting traders in colourful jackets.
👉 Next step?Check out our courses at CLiK Trading Education, where we take you from “what on earth is a covered call?” to confidently building a trading plan that works for you.