3 Option Income ETFs That Pay You 12 Times a Year. Here’s How the Monthly Check Is Generated

Global X S&P 500 Covered Call ETF (NYSEARCA:XYLD), JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI), and Global X Russell 2000 Covered Call ETF (NYSEARCA:RYLD) are three covered call funds. Each makes 12 distributions a year. Over the last 12 months, XYLD paid out close to 11% of its net asset value, JEPI over 8%, and RYLD close to 13%. Net asset value (NAV) is the per-share value of everything a fund holds.

How a Covered Call Turns Into Cash

A call option is a contract. It gives its buyer the right to purchase an asset at a set price (the strike) by a set date. The buyer pays the seller an upfront fee for that right, called the option premium, and a covered call is a call sold against shares the seller already owns.

The fund keeps the premium and passes it along to shareholders. The cost appears when the asset exceeds the strike. Every dollar of gain past that level goes to the buyer. The deal is cash now in exchange for a cap on later gains.

XYLD Sells Nearly All of the S&P 500’s Monthly Upside

XYLD tracks the Cboe S&P 500 BuyWrite Index. It owns 506 holdings in all, with NVIDIA at about 8% of net assets and Microsoft near 5%. Against that entire portfolio, it sells one-month S&P 500 index calls.

The calls are written at the money, meaning the strike sits at or near the index’s current level. At-the-money options pay the most for the time remaining before they expire, which is why XYLD’s checks are large. When the S&P 500 jumps in a given month, XYLD keeps its premium and dividends but gives up almost the entire rally. The fund has $3.38 billion in net assets and charges a 0.60% expense ratio.

RYLD Collects Bigger Premiums From Small Caps

RYLD runs the same strategy on the Russell 2000, an index of smaller U.S. companies. It owns a sister Global X fund that tracks the index, which was about 101% of net assets in its July filing, and it sells at-the-money Russell 2000 calls against the full position.

The payout difference comes down to volatility. Small caps swing harder than large caps, so call buyers pay more.

RYLD’s current short call has a 2,855 strike, leaving about 2% of upside before the option expires on October 16. The fund has $1.32 billion in assets.

JEPI Earns Its Premium Through Bank-Issued Notes

JEPI is actively managed and writes calls on only part of its exposure. About 80% of its assets are in defensive, low-volatility large-cap stocks picked by J.P. Morgan Asset Management. Its biggest positions in the June filing (Howmet Aerospace, Johnson & Johnson, and Eaton) were each under 2% of net assets.

The income comes from bank-issued notes known as ELNs, with payouts linked to options strategies. JEPI’s strategy is selling one-month, out-of-the-money S&P 500 calls. Out-of-the-money means the strike is set above the index’s current level. JEPI keeps some upside before the cap kicks in and takes a smaller premium in exchange.

The notes add counterparty risk. Each note is only as reliable as the bank that issued it. JEPI’s June holdings included notes from Barclays, BNP Paribas, BofA Finance, Citigroup, GS Finance, National Bank of Canada and Royal Bank of Canada. With $44.7 billion in net assets, JEPI is much larger than either Global X fund.

Why the Check Shrinks When Markets Calm Down

Option premiums depend on expected volatility. When fear rises, buyers pay more for calls. When markets settle, premiums shrink. The check often gets smaller just as the rest of a portfolio is doing well.

JEPI’s history shows the pattern clearly. In the 2022 bear market, its payment reached about $0.62 per share in July. In calmer 2026, the February payment was about $0.34.

XYLD’s recent payments fell from $0.41 in July to $0.30 in September. During September, the VIX dropped as low as 14. The VIX is near 16 now, within its normal range, pointing to moderate premiums.

RYLD’s payment has fallen from about $0.25 in 2021 to about $0.15. None of these amounts are fixed.

Two Costs Come With Every Payment

The first cost is giving up part of every strong rally. Over the past decade, XYLD’s dividend-adjusted share price rose about 126%. Over the same period, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) rose about 253%, not counting its dividends.

Over five years, XYLD gained about 48% and JEPI about 43% on an adjusted basis, while SPY’s price gained 76%. RYLD gained just 13%. The premiums cushion losses only slightly, so all three funds still drop when stocks sell off.

The second cost is taxation. Qualified dividends from U.S. companies are taxed at lower long-term capital gains rates, while option premiums generally don’t qualify, and income from JEPI’s notes is usually taxed as ordinary income.

Global X estimates that current distributions from both XYLD and RYLD include a return of capital. A return of capital hands part of your own investment back to you. It isn’t taxed when paid, but it lowers your cost basis, so your taxable gain is larger when you sell. Each fund’s 19a notice shows how every payment breaks down.

Who These Funds Suit

This structure fits investors who want monthly cash from stocks. Those who can handle a check that changes every month and accept trailing the market in strong years. JEPI suits people who want to keep some upside and own defensive stocks, as long as they’re comfortable with bank counterparty risk. XYLD and RYLD suit specific investors. Those who want the largest premium from a simple index strategy and are willing to give up nearly all monthly upside. These funds don’t fit anyone who needs long-term growth, a fixed payment, or protection from stock market declines.

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