QQQ1 owns the Nasdaq -100; The ETF sells covered calls and index spreads for protection and pays out weekly dividends to shareholders.
This Income ETF owns the 100 stocks in the Nasdaq 100 and writes covered calls to earn premium from those venturing to trade options on the QQQ. Given the hefty premiums due to high volatility, the hauls are quite impressive. The ETF pays its investors a weekly payout of the premiums as a dividend, leaving enough protection to not lose capital. The rule of thumb here is that the dividend income should be strong enough to cover the possible loss in Net Asset Value of the ETF, which moves with the Nasdaq 100 - the QQQ. If the Nasdaq -100 stays steady, the fund has made a packet because the call option holders won't exercise their calls. If the Nasdaq-100 falls, they still won't exercise their calls but it should not fall more than the premium received.
They do have other hedges like collars because the focus is not on appreciation but to earn a difference between the premiums received from the options sold and the premiums spent to protect themselves. They are careful about capital erosion, and try to ensure that it isn't just dividends are positive.
This is how it worked for me. Last year, I owned GPIQ (a similar competing fund run by Goldman Sachs) and held onto it for 7 months. I made about 20% in dividends, with the was a weekly payout, but I lost 9% when I sold the ETF, getting a net gain of 11%.The covered call strategy is good, because right now there are a lot of options traded and the premiums are historically high and don’t see any signs of abating.
The challenges - From peak to trough the drop in the QQQI in 2025 was about 25% - it is a volatile market. The fund manager has to be exceptional and disciplined.
That premium from the option strategy that the fund gets isn't enough to cover a deep drop of more than 15-20%. If, say, Nasdaq-100 drops 30% in 2026, these funds could lose around 32-35%. Even the dividend yield they get won't cover half of the drop. Right now the dividend yield is 14%.
I plan to invest small amounts - getting an income of 12% a year, without losing capital is a fair trade.
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