3 Covered Call ETFs That Grow NAV While Delivering High Yields

Covered call exchange-traded funds (ETFs) have become increasingly popular as investors seek income in uncertain markets, but they face a fundamental challenge: net asset value (NAV) erosion. These funds typically hold stocks or other assets and sell call options to generate premium income, offering yields that often exceed 10%. However, the distributions frequently outpace capital gains, especially in volatile or bearish markets, leading to a gradual decline in the fund’s underlying value over time.

The structural limitations of covered call strategies create additional complications. Most funds face capped upside potential during strong bull markets and heightened sensitivity to market swings, sparking debate about their long-term value proposition. Finding covered call ETFs with stable NAVs is difficult enough, but achieving consistent NAV growth remains exceptionally rare in this category, making the three NEOS ETFs particularly noteworthy for their ability to overcome these inherent limitations.

The NEOS S&P 500 High Income ETF (CBOE:SPYI) tracks the S&P 500 while actively selling out-of-the-money call options on the index, delivering a substantial 12.2% yield to income-focused investors. What sets SPYI apart is its demonstrated ability to grow net asset value while generating this high income stream. Over the past year, SPYI has achieved a 15.2% total return, slightly outperforming the S&P 500’s 14.8% return.

SPYI’s success stems from its active management approach, which carefully balances premium collection with capturing market upside. The fund’s focus on out-of-the-money options allows it to retain more upside potential than traditional at-the-money strategies. Additionally, SPYI employs a tax-efficient structure using Section 1256 contracts with a 60/40 long-term/short-term tax split and tax-loss harvesting techniques that minimize NAV erosion by classifying some distributions as return of capital.

With a 0.68% expense ratio and diversified exposure to the S&P 500, SPYI reduces risk compared to single-stock or sector-focused funds. The ETF’s ability to navigate various market conditions—from bullish to sideways—enhances its reliability for investors prioritizing both yield and capital preservation, making it an ideal choice for those seeking balanced exposure to large-cap equities with enhanced income generation.

The NEOS Nasdaq-100 High Income ETF (NASDAQ:QQQI) targets the technology-heavy Nasdaq-100 index, leveraging its inherent volatility to generate substantial option premiums. Launched in January 2024, QQQI sells out-of-the-money call options to produce an impressive 14.3% yield while simultaneously growing its net asset value. Since inception, the fund has delivered a 21.1% cumulative return, significantly outperforming the CBOE Nasdaq-100 BuyWrite Index’s 12% performance.

QQQI’s growth is driven by a sophisticated, data-driven options strategy that optimizes strike prices and expiration dates to capture upside while harvesting premiums. Like its sibling SPYI, QQQI utilizes tax-efficient Section 1256 contracts to reduce tax burdens and support NAV stability. The fund’s 0.68% expense ratio remains reasonable given its active management approach, though investors should note its relatively short track record when considering allocation decisions.

The ETF’s focus on volatile Nasdaq-100 stocks makes it particularly suited for investors comfortable with technology sector exposure. QQQI’s adaptability to market swings and its strategic option selection ensure it balances income generation with capital appreciation, appealing to growth-oriented income seekers who want to participate in tech sector gains while receiving substantial monthly distributions.

The NEOS Bitcoin High Income ETF (CBOE:BTCI), launched in October 2024, represents the most aggressive approach in the covered call ETF space. The fund uses synthetic Bitcoin exposure through the VanEck Bitcoin ETF (CBOE:HODL) and sells layered call options on the CBOE Bitcoin ETF Index to generate a remarkable 27.3% yield. BTCI has demonstrated significant NAV growth, returning 57.99% since inception, driven primarily by Bitcoin’s strong performance over the past year.

BTCI’s strategy capitalizes on Bitcoin’s extreme volatility to generate substantial option premiums while maintaining exposure to cryptocurrency appreciation. The layered call option approach allows the fund to maximize income generation while preserving some capital growth opportunities. However, the fund’s 0.98% expense ratio reflects the complexity of its strategy, and its single-asset focus makes it significantly riskier than more diversified covered call ETFs.

This innovative approach to a volatile asset class offers unique potential for risk-tolerant portfolios, though its NAV stability remains heavily dependent on cryptocurrency market trends. BTCI suits aggressive investors betting on Bitcoin’s continued rise who want to enhance returns through option premium income, but it requires diligent monitoring given the inherent risks of cryptocurrency investments and the fund’s relatively short operating history.