Options income1 ETFs aim to help investors stay invested through choppy markets by combining equity exposure with an income-focused options overlay.
At their core, these ETFs are designed to offer a straightforward proposition: income, some participation in market upside, and potentially less volatility than traditional long-only equity exposure. This can help investors stay invested through different market environments.
The premise is simple: rather than trying to time the market, the strategy helps to remain invested while seeking to turn volatility into income and managing its impact.
How do options income ETFs generate income?
Options income ETFs seek to generate consistent distributions by sourcing income from two main streams: stock dividends and options premium.
Options premium is often the larger contributor to overall income generation. During volatile periods, these ETFs typically generate more income because options’ prices are positively correlated to volatility. By systematically selling call options to collect options premium, this can, in turn, may translate into higher distributable income for investors at times of higher uncertainty in the equity market.
The table below shows the six most recent month-end observations of the 12-month rolling distribution yield2 for our three Equity Premium Income (EPI) active ETFs, illustrating the trailing distribution profile over time.
How do options-income ETFs support portfolios during volatile markets?
In March, the outbreak of US-Iran conflict pushed the CBOE Volatility Index (VIX), a widely used measure of expected US equity market volatility, to levels last seen during the market swings around the ‘Liberation Day’ tariffs in April 2025.
Elevated volatility lifted option premiums, which in turn translated into additional income that helped cushion the impact of the broader market dip. This premium income contributed to the outperformance of EPI active ETFs versus their respective benchmarks during the month.
The benefit of premium income can be even more evident in two-way, choppy markets or sideways trading environments. Combined with excess returns from the actively managed portfolios, JEPI, JPEQ and JEGA, were able to deliver better total return with lower volatility compared to their respective benchmarks3.
What is the key trade-off to consider?
The key trade-off is that EPI active ETFs are unlikely to keep pace with the broader market during sharp, narrow equity rallies, as was the case in April and May of this year. This is due to the options overlay strategy, which can limit some potential gains, as well as the typically lower-beta equity portfolio, which is designed to be less sensitive to market moves.
Investors should be comfortable with this trade-off. Rather than aiming to maximise returns, these ETFs seek to balance income generation, participation in equity markets and risk management across a variety of market environments. Option premiums can present a different source of income than stock dividends, or bond income, which can be affected by interest-rate changes.
How do we see the opportunity set?
Markets rarely stay narrow indefinitely, and by their nature change over time. Our equity teams see earnings growth broadening across regions and sectors beyond the largest US technology names. We believe our EPI active ETFs are positioned to participate in market gains while presenting income opportunities.
Our EPI active ETFs are rated “Highly Recommended” by Lonsec5.