Vanguard’s 8-for-1 Split Made VGT Look Cheaper. For Retirees Sitting on Decades of Tech Gains, the Passive Income Math Just Got More Interesting.

I think the Vanguard Information Technology ETF (NYSEARCA: VGT) is the poster child for why investors should let winners run. If you were able to hold this ETF through the sizable volatility that comes with a concentrated technology sector investment, you would have earned a 24.09% annualized return over the trailing 10 years. 

The ETF became so successful that Vanguard recently implemented an 8-for-1 stock split, reducing the share price to a much more manageable roughly $112 as of May 19. Importantly, the split itself changes nothing fundamental. The underlying holdings did not suddenly become cheaper. The ETF’s valuation metrics, expense ratio, and 0.36% 30-day SEC yield all remain exactly the same.

Still though, for retirees sitting on substantial unrealized gains in VGT, the split did make one thing materially more accessible: selling covered calls. That matters because many long-term VGT holders may not want to liquidate their shares outright and trigger large capital gains taxes, even at favorable long-term rates. But retirement still requires cash flow, and VGT’s dividend yield alone is unlikely to provide enough income.

The stock split lowered the capital required to implement options strategies on the ETF, making covered call writing accessible to many more investors than before. Here is how that works, along with an example using the recent option chain data for VGT.

What Is Selling Covered Calls?

A covered call strategy is fairly straightforward. You own at least 100 shares of an underlying stock or ETF and then sell a call option against those shares. The buyer of the option receives the right, but not the obligation, to purchase your shares at a predetermined strike price before expiration.

In exchange for granting that right, you collect an upfront premium. There are a few variables that influence how much premium you receive, namely:

• Time to expiration: Longer-dated options generally pay more premium because there is more time for the underlying ETF to move.
• Strike price and moneyness: Calls with strike prices closer to the current market price generally generate more premium because they have a higher probability of finishing in the money.
• Implied volatility: Higher expected volatility increases option premiums because the odds of large price swings rise.

Covered calls can be an attractive way to monetize appreciated positions gradually while generating supplemental income. There are generally three outcomes by expiration:

1. If the ETF rises above the strike price, your shares are called away and sold at the strike price. You keep both the premium and the sale proceeds.
2. If the ETF stays roughly flat or modestly below the strike, the option expires worthless and you simply keep the premium.
3. If the ETF falls sharply, you still keep the premium, although it only partially offsets the decline in the value of your shares.

Importantly though, many retirees may actually welcome assignment. If you are already sitting on decades of gains in VGT, covered calls can essentially allow you to get paid while gradually trimming your position at predetermined prices. And thanks to the stock split, that strategy is now much more accessible. Before the 8-for-1 split, selling one covered call required controlling roughly $80,000 to $90,000 worth of VGT shares. Today, 100 shares cost only around $11,200.

How Much Yield Could You Generate?

Let’s use Yahoo Finance options data for VGT as of May 19 as a simplified example. Suppose you have 100 shares of VGT you’re willing to let go, currently trading around $112 per share. You might decide to sell a slightly out of the money covered call expiring June 18, 2026 with a strike price of $115. In options notation, that would be the VGT 260618C00115000 contract.

At the time of writing as of May 19, the option was quoted with roughly a $2.10 bid and $2.55 ask. Taking the midpoint gives us an estimated premium of approximately $2.33 per share. Because one options contract controls 100 shares, that translates into roughly $233 in premium collected upfront before taxes. Against an underlying position worth approximately $11,200, that works out to roughly a 2.08% one-month yield before taxes.

Annualized (multiplied by 12, assuming you’re selling covered calls monthly), this strategy could produce a 24.96% yield, but the actual figure will depend on volatility, strike selection, and market conditions. Still, it demonstrates why covered calls have become so attractive for retirees seeking additional income from appreciated growth positions. A lot of income ETFs just do a variant of this covered call strategy on the back end and charge you an expense ratio.

Of course, there are tradeoffs to consider. If VGT closes above $115 by expiration, your shares will likely get called away and sold at that strike price, but in exchange, you are receiving both the premium and the appreciated sale value. If VGT stays below $115, you simply keep the premium and continue holding your shares. However, if VGT declines sharply, the premium cushions some of the downside, though certainly not all of it.

Importantly, covered call writing is flexible. Investors can choose different expiration dates, different strike prices, and different levels of aggressiveness depending on how much upside they are willing to sacrifice in exchange for current income. Just remember that implied volatility plays a major role here. Higher volatility environments generally produce much richer premiums, while calmer markets reduce the amount of income available.