JEPI vs. QYLD | Comparing Option Income ETFs
If you want to generate income from your investments, you might be interested in exchange-traded funds (ETFs) that use option strategies. These ETFs sell call options on an underlying index or portfolio of stocks and collect premiums as income.
However, not all option income ETFs are the same. This article will compare two popular option income ETFs: JPMorgan Equity Premium Income ETF (JEPI) and Global X Nasdaq 100 Covered Call ETF (QYLD). We will look at their key metrics, strategies, and performance to help you decide which is best.
JEPI vs. QYLD Key Metrics
The dividend yields of option income ETFs change considerably based on market volatility and option pricing for all option-selling funds. Therefore, when comparing these ETFs, it is important to look at other factors such as expense ratio, number of holdings, and underlying index. You should consider learning how to sell options yourself to avoid paying the expense ratio.
JEPI key metrics:
Expense ratio: 0.35%
Dividend yield: 6-12%
# of holdings: 135
Index: S&P 500
QYLD key metrics:
Expense ratio: 0.60%
Dividend yield: 6-12%
# of holdings: 102
Index: Nasdaq 100
As you can see, JEPI has a lower expense ratio than QYLD, which means it charges less fees to investors. JEPI also has more holdings than QYLD, which means it is more diversified and less concentrated in a few stocks. However, while QYLD is less diverse, it will generate higher returns in bull markets.
JEPI vs. QYLD Strategy Comparison
The main difference between JEPI and QYLD is the underlying index they track and the type of options they write. JEPI focuses on low-volatility companies within the S&P 500, while QYLD focuses on the Nasdaq 100 stocks.
JEPI holds 135 low-volatility companies within the S&P 500, while QYLD holds 102 companies that form the Nasdaq 100. QYLD writes calls on the Nasdaq index (NDX), while JEPI writes calls on the S&P 500 index (SPX).
JEPI Strategy Overview
JEPI uses a defensive equity portfolio that selects stocks to buy based on its proprietary risk-adjusted stock rankings. It aims to provide exposure to high-quality companies from the S&P 500 and sell call options on the index to generate monthly income.
The options overlay is designed to enhance the portfolio’s yield while reducing its downside risk. When you invest in JEPI, you are essentially buying low-volatility S&P 500 stocks and selling covered calls against them, which is a low-beta strategy.
QYLD Strategy Overview
The Fund aims to generate income by selling call options on the same index that it invests in, which is the Nasdaq 100. This is a “buy-write” or “covered call” strategy that can benefit from high volatility in the market. The Fund is called the Global X Nasdaq 100 Covered Call ETF (QYLD).
The call options are written at or near-the-money with one-month expiration dates. The Fund collects option premiums as income and distributes them monthly to shareholders. The Fund aims to provide exposure to the technology-heavy Nasdaq 100 Index while mitigating some of its downside risk.
Which ETF is Best For You?
The choice between JEPI and QYLD depends on your risk tolerance, income preference, and market outlook. If you are looking for a more conservative option income ETF that invests in low-volatility stocks and writes options on a broad market index, you might prefer JEPI. If you are looking for a more aggressive option income ETF that invests in high growth stocks and writes options on a technology-focused index, you might prefer QYLD.
However, both ETFs have their pros and cons. Both ETFs may underperform their respective indexes in strong bull markets when their written options limit their upside potential.
Therefore, it is important to do your own research and due diligence before investing in any option income ETF. You should also consider your own financial goals, risk appetite, and portfolio allocation when making your investment decisions.
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Frequently Asked Questions
What is the difference between QYLD and JEPI?
QYLD and JEPI are both option income ETFs that sell call options on an underlying index or portfolio of stocks and collect premiums as income. However, JEPI focuses on S&P 500 stocks, while QYLD focuses on Nasdaq-100 stocks.
Is JEPI a good long-term investment?
JEPI may be a good long-term investment for investors who are looking for a defensive equity portfolio that provides exposure to high-quality companies with strong balance sheets, stable earnings, and attractive valuations. JEPI also offers a disciplined options overlay that enhances the portfolio’s yield while reducing its downside risk. However, investors must understand the upside returns are capped due to the short-call options.
Is JEPI good for passive income?
JEPI may be good for passive income for investors who are looking for a consistent and reliable source of income from their investments. JEPI pays monthly dividends that are derived from the option premiums it collects from selling call options on the S&P 500 Index. The dividend yield of JEPI varies depending on the market volatility and option pricing, but it typically ranges from 6% to 12% annually.
How does JEPI pay such a high dividend?
JEPI pays such a high dividend because it sells call options on the S&P 500 Index and collects premiums as income. The call options are written out-of-the-money, which means they have a higher strike price than the current market price of the index. This allows JEPI to capture some of the upside potential of the index while generating income from the option premiums.
Does JEPI pay out monthly?
Yes, JEPI pays out monthly dividends to its shareholders.
