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Blackrock Launches Covered-call Equity Etfs as Option-based Funds Surge

March 15, 2024
minute read

BlackRock is introducing two fresh exchange-traded funds (ETFs) employing option strategies, an increasingly popular domain within the U.S. ETF market.

These newly unveiled funds will employ a covered-call approach on U.S. equities. Rachel Aguirre, head of U.S. iShares product at BlackRock, conveyed that the iShares S&P 500 BuyWrite ETF (IVVW) will concentrate on large-cap stocks, while the iShares Russell 2000 BuyWrite ETF (IWMW) will target small-cap equities. Aguirre mentioned in a phone interview that both ETFs are set to commence trading on Friday.

Investors participating in these funds may potentially receive monthly income from call-option premiums garnered through their strategies, in addition to potential price appreciations from the equity assets they track, albeit up to a certain threshold.

Aguirre elucidated that there exists "a trade-off" between the monthly income sought by the new ETFs through the sale of monthly call options on their underlying equity indexes and the exposure to upside movements in U.S. stock prices.

Investors are poised to witness the first 1% of prospective gains each month from the underlying fund primarily focused on the S&P 500, and the first 2% of price returns each month from the underlying ETF tracking the Russell 2000, as per Aguirre's explanation.

According to FactSet data, shares of the iShares Core S&P 500 ETF (IVV) have ascended by 1.4% this month until Thursday, marking a year-to-date increase of 8.3%. Conversely, shares of the iShares Russell 2000 ETF (IWM) have dipped by 0.8% in March, yielding a 0.7% gain for the year through Thursday.

Aguirre highlighted that shareholders of BlackRock's new BuyWrite ETFs, which hold IVV and IWM, would also benefit from income derived from quarterly dividends.

JPMorgan Chase & Co. analysts underscored in a research note on Thursday that the adoption of option-based ETFs by investors continues to expand, fueling robust growth in assets under management and in the diversity of products offered. They noted that assets managed by option-based ETFs listed in the U.S. have surged approximately 700% over the past three years, totaling around $100 billion across roughly 300 products.

The analysts emphasized that call overwriting strategies constitute the largest segment of options-based ETFs, offering investors income augmentation on an equity portfolio through the monetization of option premiums.

Call options confer upon holders the right, but not the obligation, to purchase a security at a predetermined price by a specified date. In exchange for this right, the call-option buyer compensates the seller with a premium.

Aguirre reiterated that shareholders of BlackRock's new BuyWrite ETFs, encompassing IVV and IWM, would additionally reap income from quarterly dividends.

Adan Harris
Managing Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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