[Edaily Reporter PARK MIN ] As the domestic stock market experiences extreme volatility, investor interest is growing in “covered call exchange-traded funds (ETFs),” which offer stable monthly distributions (dividends). These ETFs are hybrid products that combine “purchasing the underlying asset (stocks or indices) in the spot market with selling call options,” offering the advantage of enabling investors to build a relatively favorable investment strategy during sideways or volatile market conditions.

According to Koscom’s ETF CHECK on the 13th, the “KODEX 200 Target Weekly Curved Call” was the top ETF in terms of net purchases by retail investors over the past week as of the previous day, recording 156.6 billion won. During the same period, this ETF also ranked second among ETFs with the highest capital inflows (303.7 billion won), including not only retail investors but also foreign and institutional investors.

As more investors turn to the U.S. stock market (New York Stock Exchange) to avoid volatility in the domestic market, the figure is not far behind the “TIGER U.S. S&P 500” (361.4 billion won), which ranked first in net ETF inflows. This demonstrates the high level of interest among retail investors in covered call strategies among ETF products.

A covered call ETF is a product that invests in stocks or stock indices while simultaneously selling call options (the right to buy stocks) to earn premium income. Simply put, while holding a specific stock, the investor makes a “promise”—a call option—that “even if the stock price rises, it can be bought at a predetermined price,” and sells this option for a premium. This premium translates into stable monthly distributions.

Since covered call ETFs are bound by a promise (the call option) to buy or sell at a predetermined price, investors cannot capture the full gains even if the stock price surges significantly. However, they offer the advantage of offsetting losses in the underlying asset through option premiums during periods of mild decline in a sideways market like the one we’ve seen recently, while generating additional returns from premiums during periods of moderate growth.

Recently, products that have achieved high returns by combining gains from the underlying asset with option premium income have been emerging one after another. According to industry sources, the recent returns of some covered call ETFs have reached 70–80%. An industry official stated, “In highly volatile conditions like those we’re seeing now, option premiums rise, which means the capacity to pay distributions will also increase depending on investment performance.”

Samsung Asset Management’s “KODEX 200 Covered Call Active” paid its first monthly distribution of 153 won per share (a monthly distribution rate of approximately 2.1%) at the end of last month. Listed on the 14th of last month, the product attracted significant market attention by surpassing 500 billion won in net assets in just about a month.

Kiwoom Asset Management’s “KIWOOM KOSDAQ 150 Covered Call Active ETF,” which listed on June 30, also made its first monthly distribution at the end of July, paying 175 won per share. The monthly distribution yield stood at approximately 2.40% based on the fund’s net asset value on the ex-dividend date (July 29). This ETF also grew fivefold in just over a month, from 10 billion won in net assets at the time of listing to 52.7 billion won as of the 10th of this month.

As investment performance has improved, products that pay special dividends in addition to regular monthly dividends have also emerged. Korea Investment Trust Management has increased distributions for three Daily Target Covered Call ETFs: △ACE U.S. 500 Daily Target Covered Call (Synthetic), △ACE U.S. Semiconductor Daily Target Covered Call (Synthetic), and △ACE U.S. Big Tech 7+ Daily Target Covered Call (Synthetic). While the distribution rate for these products had been around 1.25% per month since their listing in April 2024, the monthly distribution rate has risen significantly to the 2–3% range since last June with the addition of special distributions.

An official from Korea Investment Trust Management stated, “We are paying special distributions in addition to the regular monthly distributions to faithfully return the accumulated distributable funds to investors,” adding, “However, special distributions will only be paid until the accumulated funds are exhausted.”

Some industry observers point out that while the covered call market is growing rapidly, high distribution rates should not be equated with investment returns. An industry official advised, “Even if an ETF pays out high distributions, an investor’s total return may decline if the price of the underlying asset or the net asset value (NAV) falls,” adding, “In particular, covered calls have the limitation that they do not fully capture stock price gains during strong bull markets, so the overall return must be considered in conjunction with this.”