Around 1.5 years ago, we launched the Dividendology Covered Call ETF Database-
A database that tracks in-depth data on these high yielding ETFs to help you make the best decision possible.
And last month, we officially released our European version!
This database is currently tracking over 83 funds-
With 56 of them being from IncomeShares!
Over the past few months, we’ve expanded our educational coverage on these assets to make sure investors have a clear understanding of how they work.
We’ve covered topics like:
While also diving closer into subjects like portfolio options coverage, and how volatility impacts distributions for these funds.
And today, we’ll be diving deeper into another important topic that impacts your distributions:
Option Moneyness.
🧩 IncomeShares
The ETF issuer IncomeShares has grown rapidly in popularity over the last few years.
IncomeShares is a European provider of high-yield exchange-traded products designed to generate monthly income through options strategies.
IncomeShares offers a range of European-listed options income ETPs, including funds tied to:
Stocks
Commodities
Real Estate
Treasuries
Many of these assets have little to no yield.
However, through an options strategy, IncomeShares is able to generate yields of often north of 10% on these assets.
Let’s use these funds as an example of how option moneyness works.
Thanks to IncomeShares for sponsoring this educational breakdown.
🏦 TLTY: Out-of-the-money calls on Treasury bonds
The IncomeShares 20+ Year Treasury Options ETP (TLTY) holds exposure to TLT, an ETF that owns long-term U.S. Treasury bonds.
TLTY then sells out-of-the-money call options on TLT to generate additional income.
Let’s walk through an example of how option moneyness works with TLTY.
Suppose TLT trades at $100 and TLTY sells a call with a $105 strike price.
The option is out of the money because TLT would need to rise 5% before reaching that strike.
TLTY collects a premium when it sells the call and can still participate in TLT’s price gains up to $105.
Gains above that level are limited by the option.
The income comes from the call premium, but the strike price determines how much of that rally the strategy can actually capture.
If bond prices fall instead, the premium may cushion some of the loss, but it does not eliminate it.
🥇 GLDI: In-the-Money
The IncomeShares Gold+ Yield ETP (GLDI) currently sells out-of-the-money calls on GLD. But changing the strike in a hypothetical example shows what an in-the-money call would do.
Suppose GLD trades at $100.
A call with a $105 strike is out of the money and leaves room for GLD to rise before the option limits further gains.
A call with a $95 strike is in the money because its strike is already below GLD’s market price.
The $95 call would bring in a larger premium.
At least $5 of that premium, however, reflects value the option buyer could receive immediately by purchasing GLD below its current price.
If GLD remained above $95 through expiration, the strategy would give up its price gains above $95.
The larger cash payment would therefore come with much less participation in a gold rally.
GLDI is not described as selling in-the-money calls today.
Its actual out-of-the-money approach accepts a smaller option premium in exchange for retaining more potential upside in GLD.
⚖️ Which is Best?
So which of these strategies is best?
Like almost always in the world of finance, it depends.
Both strategies have pros and cons.
As you explore your options in the income space, it is imperative you understand each funds underlying structure.
This is why we spend so much time on education and building tools to analyze these funds.
As a reminder, members of Dividendology get access and updates to the Dividendology Covered Call ETF Database as well as the European Option Income ETF Database.
Like always, if you want to get access to the Dividendology Database, as well as all the features mentioned below, you can do so here:
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