The Invesco QQQ Trust ETF (QQQ) is very popular for use as the underlying asset for covered call strategy ETFs. My ETF database currently includes 19 funds that use QQQ or a QQQ derivative as their underlying asset.
QQQ is the index ETF for the Nasdaq 100 ETF. The index is market-cap weighted and includes the 100 largest companies trading on the Nasdaq Stock Exchange. The QQQ stock symbol has become ubiquitous as shorthand for the Nasdaq-100.
QQQ is heavily weighted toward large-cap tech stocks, so it is often viewed as a proxy for technology stocks. QQQ option strategy ETFs use a covered call option-selling strategy to generate cash flow, which is used to pay dividends. QQQ-based covered call ETFs typically pay monthly dividends and have yields ranging from high single digits up to the mid-teens.
Most of these ETFs use QQQ as the underlying asset and then apply an options strategy overlay. A few of the QQQ ETFs employ some active management in their portfolio holdings. One common tactic is to exclude non-tech stocks from the index from an ETF’s portfolio, giving the fund more tech-focused return potential.
On May 12, Infrastructure Capital launched the InfraCap Nasdaq Option Income ETF (QVOL). According to the fund literature, Infrastructure Capital, which employs a growth-at-a-reasonable-price (GARP) approach to stock selection, will apply its proprietary investment process to select stocks from the QQQ Index .
For example, CEO Jay Hatfield, during an appearance on Fox Business, noted that InfraCap does not have Tesla (TSLA) in the QVOL portfolio because its analysis indicates the stock is greatly overvalued.
QVOL employs a call option strategy on the portfolio holdings to generate cash to pay dividends. The fund launched with a $100 share price and a $ 1.00-per-share monthly dividend, yielding 12% initially. InfraCap has a target distribution range of 12% to 15% for QVOL.
On June 26, InfraCap announced a $1.04 dividend, representing a 4% increase. The company pays stable and growing dividends across all of its income-focused ETFs, so we can expect the QVOL dividend to grow over time. The current yield is now 12.5%.
Based on my experience with other InfraCap ETFs, I expect QVOL to be a leader in the QQQ covered-call ETF group.
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