Do Covered Call ETFs Survive a Bear Market? (The Data)

Summary

The video examines how covered-call ETFs behave in downturns, emphasizing that the size of a decline and the time needed to recover are separate risks. Covered calls can cushion some declines, but they also limit upside during a fast rebound. The presenter says these funds may suit investors who need current income, but are generally less suitable for investors focused on long-term growth.

Performance and stress tests

• Long-term index history: The CBOE S&P 500 BuyWrite Index, a covered-call strategy index with data dating to 1986, returned 8.6% annually, versus 11.2% for the S&P 500. Its worst decline was 35.8%, compared with 50.9% for the S&P 500.
• 2020 rebound: The S&P 500 finished 2020 up 18%, while the covered-call index was down almost 3%—an example of capped upside during a strong recovery.
• Illustrative three-year comparison: $100,000 in SPY grew to $194,500, versus approximately $152,800 in XYLD—about $42,000 less in gains for XYLD.
• April 2025 sell-off: The presenter tested 10 funds using daily data with dividends reinvested. From the February peak to the April 8 low:
  • SPY fell 18.8%; S&P 500 covered-call funds fell 13%–17.5%.
  • QQQ fell 22.8%; Nasdaq-100 covered-call funds fell 19%–21%.
  • The presenter characterizes this protection as a modest buffer—“an airbag, not a parachute.”
• Recovery after the 2025 sell-off:
  • SPY: 79 days to regain its prior high.
  • SPYI and GPIX: recovered at roughly the same time as SPY.
  • JEPI: 136 days; XYLD: 195 days.
  • On the Nasdaq side, QQQ, QQQI, and GPIQ regained their prior levels on June 24; JEPQ did so on August 8; QYLD on October 20, also taking 195 days.
  • The presenter’s takeaway: XYLD fell less than SPY but took about 2.5 times longer to recover.
• 2022 bear market: In the slower downturn, covered-call funds generally held up better:
  • SPY fell 18%, XYLD 12%, and JEPI 3.5%.
  • JEPI regained its prior high by June 2023; SPY did so in December. The presenter says JEPI had outperformed SPY after two full years, while XYLD had not recovered by the end of 2023.
  • By the end of 2022, $100,000 in QYLD was worth about $80,900, versus $67,400 in QQQ—a $13,500 difference. QQQ subsequently passed QYLD, which still had not regained its prior high.

BTCI example and portfolio risk

The presenter describes her own position in BTCI, which writes call options on Bitcoin, during Bitcoin’s downturn:

• IBIT fell about 33.1%; BTCI’s total return, with distributions reinvested, fell about 30.7%.
• BTCI’s share price fell 47%. Its latest monthly distribution, expressed in dollar terms, was about 15% lower on an annualized basis than distributions over the prior 12 months.
• BTCI represented about 40% of the cost basis and 35% of the current value of the presenter’s income accounts, and about 20% of all investments. It generated more than half of the household’s monthly income.
• The presenter says the household is holding the position, taking distributions as income in one account and reinvesting them through a dividend reinvestment plan (DRP) in another. She calls BTCI her most speculative position, not a core holding, and says essential income needs are planned independently of it.

Four questions the presenter uses

1. Do I need the income now? If distributions will be reinvested for 20 years, the index will probably perform better, according to the presenter.
2. Is this an “old-world” or newer fund? Funds writing calls on their entire portfolio, such as XYLD and QYLD, may sacrifice more upside in a recovery. The presenter says SPYI, GPIX, QQQI, and GPIQ kept pace with their respective indexes during the rebound periods examined.
3. Do I have a cash reserve? A reserve can help avoid selling investments at depressed prices to cover expenses.
4. Is my minimum income need covered without this fund? Build the required income level from more stable funds and cash, and stress-test volatile holdings using a poor year’s income rather than the best year.

Bottom line

Covered-call funds often fell somewhat less than their benchmarks in the examples shown, but some took substantially longer to recover. The presenter cautions that distributions do not eliminate investment risk; planning, cash reserves, position sizing, and realistic income assumptions matter.

Assets and instruments mentioned

• ETFs: SPY, XYLD, SPYI, JEPI, GPIX, QQQ, QYLD, JEPQ, QQQI, GPIQ, BTCI, IBIT
• Indexes: S&P 500; Nasdaq-100; CBOE S&P 500 BuyWrite Index
• Underlying asset: Bitcoin
• Strategy: Covered-call / buy-write investing; dividend reinvestment (DRP)

Disclosure

The presenter states that the video is for educational purposes only and is not financial advice. All investments carry risk, including possible loss of capital; past performance does not guarantee future results. She advises consulting a qualified financial professional before making investment decisions.

Presenter/source: Stephanie, from Permission To Be Wealthy.