Global X Russell 2000 Covered Call ETF

RYLD

Market cap $1.37B

The Global X Russell 2000 Covered Call ETF (CBOE:RYLD) pays a monthly distribution that has drawn income-focused investors to small-cap territory for years, and at about $16 a share with $1.85 in trailing 12-month distributions, the fund still throws off a double-digit yield in a market where the 10-year Treasury pays 4.6%.

Global X Russell 2000 Covered Call ETF remains a hold due to structural NAV erosion and capped upside from its ATM option strategy. RYLD offers a high monthly yield of 11.9% and delivered a 20.5% total return over twelve months but underperforms peers in bull markets. The fund's reliance on return of capital for distributions and declining NAV make it unsuitable as a long-term buy-and-hold position.

Retirees hunting for income have pushed covered call ETFs into the mainstream over the past few years, and it's not hard to understand why.

A covered call ETF holds a basket of dividend-paying stocks while simultaneously selling call options on those same holdings. In return, you get paid a premium. That premium is extra income on top of your regular dividends. Covered call funds work best when stock prices are stable or rising slowly. If the stock price shoots up dramatically, your shares might get called away at the strike price. You miss out on that extra gain. That's the one caveat to covered call ETFs - you cap your upside.

Global X Russell 2000 Covered Call ETF remains a Buy, leveraging aggressive option writing for high income in flat or volatile small-cap markets. RYLD's strategy of writing at-the-money calls on the Russell 2000 generates substantial premiums, supporting a ~12% TTM yield and mitigating moderate drawdowns.

Double-digit yields make most serious investors, and they should be wary as there is a history of high-yield funds that are littered with products that paid eye-catching distributions for a few quarters before quietly eroding into irrelevance.

Monthly income above 12% sounds like a promise that usually comes with a catch. These three ETFs actually pay it, though each one earns that yield through a different mechanism, and each carries a different set of trade-offs worth understanding.

RYLD is a passive ETF that adopts a covered call strategy on the small-cap segment, which today generates over 11% in distributions. The covered call strategy makes RYLD, in my opinion, an excellent hedge during bearish phases in the small-cap market. However, it does not seem to have been able to best represent bullish phases.

We're not even two weeks into 2026, and vanilla investors have already lost the plot. Their blindness has tossed 3 cheap—and growing—dividends into our laps.

Covered-call strategies can be an income investors' best friend. Whether the broader stock market goes up, down or merely grinds sideways, selling covered calls pays.