Is This High-Yield ETF the Smartest Investment You Can Make Today?

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Leo Sun, The Motley Fool

Sat, Apr 5, 2025, 12:55 AM 4 min read

2025 has been a challenging twelvemonth for investors truthful far. The S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) person declined 3.5% and 8.7%, respectively, arsenic of this penning arsenic concerns astir the Trump administration's existent and promised tariffs, sticky inflation, and elevated involvement rates drove galore investors distant from macroeconomically delicate stocks.

In this benignant of market, it's tempting to simply parkland your currency successful a high-yield savings account, a certificate of deposit (CD), oregon immoderate U.S. Treasuries and telephone it a year. That would beryllium a prudent move, but determination are inactive immoderate elemental ways to make bigger gains, adjacent if you expect the marketplace to commercialized sideways for the foreseeable future.

A smiling idiosyncratic uses a tablet machine outside.

One fashionable mode to nett successful a stagnant marketplace is to put successful an exchange-traded money (ETF) that consistently writes covered calls to wage higher yields. Here's a look astatine a fashionable 1 -- the JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ) -- to spot wherefore it mightiness conscionable beryllium the smartest concern you tin marque today.

When you merchantability a covered call, you're agreeing to merchantability a banal you ain if it exceeds a definite terms (the onslaught price) astatine a definite day (the expiration date). The idiosyncratic who buys that telephone pays you an upfront premium, but you're obligated to merchantability the banal astatine the onslaught terms if it trades supra that terms erstwhile the enactment expires. If it's inactive trading beneath the onslaught terms astatine its expiration date, you'll support some the banal and the premium arsenic the enactment expires.

Covered calls volition headdress your gains successful a bull marketplace due to the fact that the underlying stocks volition apt beryllium called distant arsenic they rise. But they tin besides backfire successful a carnivore marketplace if you clasp your losing stocks for excessively agelong to gain those tiny premiums.

Therefore, a sideways marketplace is usually a "Goldilocks" situation for covered calls. If your stocks support trading wrong a constrictive and predictable range, you tin repeatedly constitute covered calls connected them to compression retired immoderate other income.

You tin repeatedly constitute covered calls connected your ain stocks to make immoderate other income each week oregon each month, but that's a time-consuming process that tin origin you to prematurely merchantability immoderate of your astir promising stocks. It besides won't enactment unless you've already invested capable currency into an underlying presumption since you request to clasp 100 shares of a banal to constitute a azygous covered call. Lastly, covered calls usually aren't taxation efficient, since each merchantability is taxed arsenic a stand-alone trade.