Funds like JEPI, QYLD and XYLD pay yields of 8% to 14% a year, several times what a stock index fund pays, and they pay every month. For anyone living off their savings, that is hard to ignore.
The income is real, but it isn’t free. These funds sell away part of the stock market’s future gains in exchange for cash today. This guide shows what that trade has looked like in practice, especially for someone who spends the income rather than reinvesting it.
How a covered call works
A fund that owns stocks can sell someone else the right to buy them at a set price over the next month. The buyer pays a fee, called a premium, up front. If the stocks stay below that price, the fund keeps both the stocks and the premium. If they rise above it, the fund’s gain is capped there: the buyer gets the rest.
The fund pays the premiums out as income. In calm or falling markets that works well. In strong markets the fund keeps giving up the best months, and because stock markets have gone up more often than down, that adds up. And the premium only softens a fall; it doesn’t stop one.
Income now, growth later
Each year below compares a covered-call fund with the index it sells options on. Returns include the income, reinvested.
| Year | QYLD | QQQ | XYLD | SPY |
|---|---|---|---|---|
| 2014 | +4.1% | +19.2% | — | — |
| 2015 | +7.1% | +9.4% | — | — |
| 2016 | +4.7% | +7.1% | — | — |
| 2017 | +18.8% | +32.7% | — | — |
| 2018 | -3.0% | -0.1% | — | — |
| 2019 | +22.8% | +39.0% | — | — |
| 2020 | +8.7% | +48.6% | — | — |
| 2021 | +10.4% | +27.4% | — | — |
| 2022 | -19.1% | -32.6% | -12.1% | -18.2% |
| 2023 | +22.8% | +54.9% | +11.1% | +26.2% |
| 2024 | +19.4% | +25.6% | +19.5% | +24.9% |
| 2025 | +9.4% | +20.8% | +8.0% | +17.7% |
- Capped in good years. In 2023 QQQ returned +54.9%; QYLD returned +22.8%. Across QQQ’s 10 up years, QYLD kept about 45% of the gain, and XYLD about 56% of SPY’s.
- Cushioned, not protected, in bad years. In 2022 QQQ lost 32.6% and QYLD still lost 19.1%. In down years QYLD took about 68% of QQQ’s loss, and XYLD about 66% of SPY’s.
Giving up more than half of the gains while keeping most of the losses is the core trade-off of a classic covered-call fund.
What happens when you spend the income
Most people buy these funds to live on the income, not to reinvest it. Here is $100,000 put into each fund at the start of 2014, with every payout taken as cash:
| Fund | Income paid | Shares worth | Total | Income, year 1 | Last 12 mo. |
|---|---|---|---|---|---|
| QYLD price -27.8% | $115,536 | $72,166 | $187,703 | $10,018 | $8,446 |
| QQQ price +726.5% | $27,639 | $826,491 | $854,130 | $1,673 | $3,529 |
| XYLD price -11.4% | $55,056 | $88,637 | $143,693 | $0 | $9,052 |
| SPY price +321.1% | $39,616 | $421,085 | $460,701 | $2,095 | $4,147 |
QYLD paid 4.2 times as much income as QQQ along the way, and XYLD 1.4 times as much as SPY. But the index funds’ shares grew so much that, counting everything, QQQ left its owner with $854,130 against $187,703 for QYLD, and SPY $460,701 against $143,693 for XYLD. For a retiree, the shrinking share price matters twice: it is the savings you might need later, and it is what future income is paid from.
Every option-income fund checked: what each one paid, what its price kept →
Newer designs try to keep more of the upside
Funds launched since 2020 use a few changes to the formula. Some sell options on only part of the portfolio, or at prices well above the market, so more of a rally is kept. JEPI holds a portfolio of steadier, lower-volatility stocks and gets its option income through notes linked to the S&P 500. Others write options on the index itself rather than on individual stocks, partly for the tax treatment.
| Fund | Yield | Cost | 2022 drop | 5 yr | 4% rule test |
|---|---|---|---|---|---|
| SPY S&P 500, for comparison | 0.98% | 0.09% | -24.5% | +12.6% | $3.23M |
| JEPI JPMorgan Equity Premium Income Fund | 7.99% | 0.35% | -12.4% | +7.4% | too new |
| JEPQ JPMorgan NASDAQ Equity Premium Income E… | 11.54% | 0.35% | — | — | too new |
| QQQI NEOS Nasdaq 100 High Income ETF | 14.16% | 0.68% | — | — | too new |
| SPYI NEOS S&P 500 High Income ETF | 11.85% | 0.68% | — | — | too new |
| QYLD Global X NASDAQ 100 Covered Call ETF | 11.7% | 0.6% | -24.0% | +8.5% | $1.81M |
| DIVO Amplify CWP Enhanced Dividend Income ETF | 6.27% | 0.56% | -12.0% | +10.8% | too new |
| RDVI FT Vest Rising Dividend Achievers Targe… | 8.91% | 0.75% | — | — | too new |
| KNG FT Vest S&P 500 Dividend Aristocrats Ta… | 8.92% | 0.74% | -16.6% | +6.1% | too new |
| XYLD Global X S&P 500 Covered Call ETF | 10.21% | 0.6% | -17.7% | +7.5% | too new |
| FTHI First Trust BuyWrite Income ETF | 9.78% | 0.75% | -11.5% | +10.7% | $1.57M |
From our dividend and option-income ETF list. 2022 drop: January 3 to October 12, 2022. 4% rule test: $1 million from Oct 2016 with 4% inflation-adjusted withdrawals. Most of these funds are too young for it.
The newer funds held up better in 2022 and have kept more of the market’s gains so far, but most have existed for only a few years, all of them in a mostly rising market. They have not yet been tested by a long bear market or a decade of strong gains.
Taxes
In a taxable account, most option income is taxed as ordinary income, not at the lower rate for qualified dividends, so a high yield can shrink noticeably after tax. Funds that sell options on an index can get partly long-term capital gains treatment, and part of some funds’ payouts is labeled return of capital, which postpones the tax but lowers your cost basis. Inside an IRA or 401(k), none of this matters until you withdraw.
Where they can fit
- As a slice, not the core. A modest position can smooth income and reduce swings, while a broad index fund does the long-term growing.
- Judge them on total return. Compare the fund’s return with income included against a plain index fund, not its yield against other yields.
- Plan for a smaller paycheck in bad years. Payouts follow option prices, which fall when markets calm down, and the share price they’re paid from can shrink.
Is a high yield what your plan needs?
Many retirees reach for income funds to avoid selling shares. ReadyAimRetire shows whether your plan works with a plain mix of funds and sensible withdrawals, before and after taxes.
Questions investors ask
Why does QYLD’s price keep falling?
It pays out nearly all of its option income and gives up most of the Nasdaq-100’s gains above the option price, so the share price has little room to grow and drifts down when it pays out more than it earns. From the start of 2014 to Oct 27, 2026, its price fell 27.8% while QQQ’s rose 726.5%.
Is JEPI a good investment for retirees?
JEPI has paid a high monthly income and fell less than the S&P 500 in 2022, but it has existed only since 2020 and has trailed the index in strong years. It can be part of an income plan; it isn’t a substitute for a diversified portfolio, and most of its income is taxed as ordinary income in a taxable account.
Are covered-call ETF payouts qualified dividends?
Mostly not. Option premiums and income from option-linked notes are generally taxed as ordinary income. Some of a fund’s payout may be qualified dividends from its stocks, long-term gains from index options, or return of capital; the fund reports the split each year.
Covered-call funds or dividend stock funds?
Dividend funds pay less now but have historically kept more of the market’s growth, so their income has tended to rise over time. Covered-call funds pay much more now, with less growth. Compare both.
How we measured
Daily prices to Oct 27, 2026. Calendar-year returns include distributions, reinvested. The income-spent test buys $100,000 of shares at the first close of 2014 and takes every distribution as cash; share values use prices without the dividend adjustment. Up and down capture compare the fund’s average return with the index’s average return in the index’s up and down calendar years. Before taxes. For education only, not a recommendation to buy or sell any fund.