Horizons changes index of S&P 500 covered call ETF

Sep 26th, 2017 | By | Category: ETF and Index News

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Horizons ETFs Management has changed the underlying index for the Horizons S&P 500 Covered Call ETF (NYSE Arca: HSPX). The ETF will switch from tracking the S&P 500 Covered Call Index to the CBOE S&P 500 2% OTM BuyWrite Index.

Horizons changes index of S&P 500 covered call ETF

Covered call strategies seek to provide enhanced income through the writing of call options.

Jonathan Molchan, head of product development at Horizons ETFs, commented: “The primary rationale behind the conversion in the underlying index is to enhance the tax efficiency of the covered call strategy. We view the blend of long and short term tax treatment on income derived from writing index options as more favourable than purely short term capital gains associated with single stock options.

“This transformation in the strategy should both benefit our investors and align HSPX with our other options’ strategies which utilize index options in the pursuit of tax efficient income.”

A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.

Historically, during bear markets, range-bound markets and modest bull markets, this type of covered call strategy has generally outperformed its underlying securities. However, during strong bull markets, when the underlying securities may frequently rise through their strike prices, covered call strategies historically have tended to lag.

So far in 2017, HSPX has returned 11.6% while the S&P 500 has returned 13.2% (as of 4 October 2017).

The ETF has assets under management of $62 million and an expense ratio of 0.65%.

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