Global X Covered Call Report: December 2022

The Global X Research Team is pleased to release the distribution and premium numbers for our covered call ETFs for December as well as the addition to the report of our 3 newest covered call & growth ETFs: TYLG, the Global X Information Technology Covered Call & Growth ETF; HYLG, the Global X Health Care Covered Call & Growth ETF; and FYLG, the Global X Financials Covered Call & Growth ETF. Global X’s Covered Call suite of ETFs generally invest in the underlying securities of an index and sell call options on that index or an ETF tracking the underlying equity index. These strategies are designed to provide investors with an alternative source of income, while offering different sources of risks and returns to an income-oriented portfolio.

Click here to download the December 2022 Covered Call Report

Throughout the life span of the Global X Covered Call ETFs’ December options contracts, implied volatilities across major U.S. equity market indices were relatively lower as the VIX fell -2.16% to 22.62 from 11/18/2022 to 12/16/2022. Typically referred to as an equity market “fear gauge”, implied volatilities saw their largest decline over this same timeframe in the days leading up to the December 14th Federal Reserve meeting where the Federal Open Market Committee (FOMC) raised interest rates by 0.50% to continue their monetary tightening regime.

This interest rate hike appeared to be in line with market expectations resulting in the aforementioned decline in implied volatility in the market. Given this modest change in implied volatility, equity markets only declined marginally in value during the period and option premiums received by our covered call ETFs were relatively similar to levels seen at the previous roll date in November. However, at the conclusion of 2022, implied volatility levels for the S&P 500 (represented by the VIX), Nasdaq 100 (VXN), Dow Jones Industrial Average (VXD), and the Russell 2000 (RVX) remained elevated relative to their 10-year averages¹ and we can see below how options premium levels through call writing for QYLD, QYLG, XYLD, XYLG and RYLD throughout 2022 were higher than 2021 premium levels.

As a general guideline, the monthly distribution of each fund is capped at the lower of: a) half of premiums received, or b) 1% (for QYLD, RYLD, XYLD, and DJIA)/0.5% (for QYLG, XYLG, RYLG, TYLG, HYLG, and FYLG) of net asset value (NAV). The excess amount of option premiums received, if applicable, is reinvested into the fund. Year-end distributions can exceed the general guideline due to capital gains that are paid out at the end of the year.

Fund Premiums and Implied Index Volatility

Disclaimer: Options Premiums vs. Implied Volatility graphs include implied volatility for the Nasdaq 100, S&P 500, Russell 2000, and Dow Jones Industrial Average Indexes. QYLG, XYLG, and RYLG write covered calls on these same, aforementioned equity indices, thus, their premiums are not displayed here. TYLG, HYLG, and FYLG have only rolled their options portfolios once, therefore Options Premiums vs. Implied Volatility graphs are currently not displayed for these ETFs and are expected to be added once more option premium data is received.

Related ETFs:

QYLD: The Global X Nasdaq 100 Covered Call ETF follows a “buy-write” (also called a covered call) investment strategy in which the Fund buys a basket of stocks, and also writes (or sells) call options that correspond to the basket of stocks. The Fund uses this strategy in an attempt to enhance its portfolio’s risk-adjusted returns, reduce its volatility, and generate monthly income from the premiums received from writing the call options.

XYLD: The Global X S&P 500 Covered Call ETF follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the S&P 500 Index and “writes” or “sells” corresponding call options on the same index.

RYLD: The Global X Russell 2000 Covered Call ETF follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the Russell 2000 Index (at times by exposure to the Vanguard Russell 2000 ETF), and “writes” or “sells” corresponding call options on the Russell 2000 Index.

DJIA: The Global X Dow 30 Covered Call ETF follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the Dow Jones Industrial Average (also known as the Dow 30 Index) and “writes” or “sells” corresponding call options on the same index.

QYLG: The Global X Nasdaq 100 Covered Call & Growth ETF follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the Nasdaq 100 Index and “writes” or “sells” corresponding call options on approximately 50% of the value of the portfolio of stocks in the same index.

XYLG: The Global X S&P 500 Covered Call & Growth ETF follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the S&P 500 Index and “writes” or “sells” corresponding call options on approximately 50% of the value of the portfolio of stocks in the same index.

RYLG: The Global X Russell 2000 Covered Call & Growth ETF follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the Russell 2000 Index (at times by exposure to the Vanguard Russell 2000 ETF), and “writes” or “sells” corresponding call options on the Russell 2000 Index representing approximately 50% of the value of RYLG’s portfolio.

TYLG: The Global X Information Technology Covered Call & Growth ETF follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the Information Technology Select Sector Index and the Technology Select Sector SPDR Fund, and “writes” or “sells” corresponding call options on the Information Technology Select Sector SPDR Fund representing approximately 50% of the value of TYLG’s portfolio.

HYLG: The Global X Health Care Covered Call & Growth ETF follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the Health Care Select Sector Index and the Health Care Select Sector SPDR Fund, and “writes” or “sells” corresponding call options on the Health Care Select Sector SPDR Fund representing approximately 50% of the value of HYLG’s portfolio.

FYLG: The Global X Financials Covered Call & Growth ETF follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the Financial Select Sector Index and the Financial Select Sector SPDR Fund, and “writes” or “sells” corresponding call options on the Financial Select Sector SPDR Fund representing approximately 50% of the value of FYLG’s portfolio.

Click the fund name above to view current holdings. Holdings are subject to change. Current and future holdings are subject to risk.

FOOTNOTES

1. Morningstar Direct. Data measured from 12/17/2012 to 12/16/2022 and accessed on January 05, 2023, from Global X Morningstar Direct license.

GLOSSARY

VIX: The Chicago Board Options Exchange Volatility Index, commonly referred to as VIX, reflects a market estimate of future volatility of the S&P 500 Index, based on the weighted average of the implied volatilities.

VXN: The Cboe NASDAQ-100 Volatility Index, commonly referred to as VXN, reflects a market estimate of future volatility of the Nasdaq 100 Index options, based on the weighted average of the implied volatilities.

VXD: The Cboe DJIA Volatility Index, commonly referred to as VXD, reflects a market estimate of future volatility of the Dow Jones Industrial Average’s index options, based on the weighted average of the implied volatilities.

RVX: The Cboe Russell 2000 Volatility Index, commonly referred to as RVX, reflects a market estimate of future volatility of the Russell 2000 index options, based on the weighted average of the implied volatilities.

Investing involves risk, including the possible loss of principal. Concentration in a particular industry or sector will subject the Funds to loss due to adverse occurrences that may affect that industry or sector. Investors in the Funds should be willing to accept a high degree of volatility in the price of the fund’s shares and the possibility of significant losses.

The Funds engages in options trading. An option is a contract sold by one party to another that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date. A covered call option involves holding a long position in a particular asset and writing a call option on that same asset with the goal of realizing additional income from the option premium. By selling covered call options, the Funds limit their opportunity to profit from an increase in the price of the underlying index above the exercise price, but continue to bear the risk of a decline in the index. A liquid market may not exist for options held by the fund. While the fund receives premiums for writing the call options, the price it realizes from the exercise of an option could be substantially below the index’s current market price. QYLD, DJIA, QYLG, TYLG, HYLG, and FYLG are non-diversified.

Index returns are for illustrative purposes only and do not represent actual fund performance. Index returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.

Carefully consider the funds’ investment objectives, risks, and charges and expenses before investing. This and other information can be found in the funds’ full or summary prospectuses, which may be obtained at globalxetfs.com. Please read the prospectus carefully before investing.

Global X Management Company LLC serves as an advisor to Global X Funds. The Funds are distributed by SEI Investments Distribution Co. (SIDCO), which is not affiliated with Global X Management Company LLC. Global X Funds are not sponsored, endorsed, issued, sold or promoted by Standard & Poor’s, MSCI, Dow Jones, NASDAQ, or Cboe nor do these companies make any representations regarding the advisability of investing in the Global X Funds. Neither SIDCO nor Global X is affiliated with Standard & Poor’s, MSCI, Dow Jones, NASDAQ, or Cboe.

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