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Generating Income from the NASDAQ-100® Index with the Horizons NASDAQ-100 Covered Call ETF

For the three-month period from December 1, 2022, to February 28, 2023, the Horizons NASDAQ-100 Covered Call ETF (“QQCC”) outperformed the NASDAQ-100® Index on a total return basis –  notable for a covered call strategy during a period with a sizeable rally occurring in its underlying benchmark:

Source: Bloomberg, as at February 28, 2023

Typically, covered call strategies can be expected to provide meaningful outperformance versus a long-only equity strategy during market declines. However, the opposite tends to be true during market rallies, where a covered-call strategy can miss out on the potential capital appreciation of the stocks in exchange for the income they have harvested by selling calls.

On a year-to-date basis, the NASDAQ-100® Index, as represented by an investable solution, the Horizons NASDAQ-100 Index ETF (“HXQ”) is up 11.01% as at February 28, 2023, whereas QQCC delivered a 9.37% return during that same period.

However, during the month of February, QQCC outperformed HXQ (2.18% vs. 2.13%) and over the last six months ending February 28, 2023, QQCC is up 5.29% vs. 2.23% for HXQ. This relative outperformance during these periods has all occurred since the update of QQCC’s investment objective on June 24, 2022.

Table 1.  Standard Performance – February 28, 2023 (% in CAD)


  1m 3m 6m  Update* YTD 1y 3y 5y 10y Since Inception Inception Date
Horizons NASDAQ-100 Covered Call ETF (QQCC) 2.18 1.95 5.29 8.40 9.45 -0.51 5.22 1.06 1.16 1.63 09/13/2011
Horizons NASDAQ-100® Index ETF (HXQ) 2.13 1.68 2.23 6.61 11.01 -8.46 13.57 13.79 17.09 04/19/2016
Nasdaq-100® Index Total Return (XNDX) 1.83 0.94 2.51 6.76 10.96 -8.41 13.91 14.34 20.55 8.20 03/04/1999

Source: Bloomberg, as at February 28, 2023

The indicated ETF rates of return are the historical annual compounded total returns, including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Additionally, index returns do not take into account management, operating or trading expenses that may be incurred in replicating the index. The rates of return above are not indicative of future returns. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. The indices are not directly investible. Only the returns for periods of one year or greater are annualized returns.

*Effective June 24, 2022, the investment objectives and strategies of the Horizons NASDAQ-100 Covered Call ETF (“QQCC”) (formerly Horizons Enhanced Income International Equity ETF (“HEJ”)), were changed following receipt of the required unitholder and regulatory approvals, to seek to provide exposure to the performance of an index of the largest domestic and international nonfinancial companies listed on the NASDAQ stock market (currently, the NASDAQ-100® Index and to employ a dynamic covered call option writing program.  Previously, the ETF sought to provide exposure to an underlying equal-weight equity portfolio and to the writing of covered call options on 100% of portfolio securities. The new ticker began trading on the TSX on June 27, 2022. For more information, please refer to the disclosure documents of the ETFs on

This level of performance after the objective updates by QQCC relative to its benchmark is in part related to the premiums that are being generated from Horizons ETFs’ NASDAQ-100® option writing efforts.

The NASDAQ-100® is particularly rich for harvesting premiums due to its implied volatility. From a relative and absolute performance perspective, writing calls could be more accretive to generating greater total return compared to holding passive NASDAQ-100® index funds, like HXQ, on their own.

The average annualized implied volatility of the NASDAQ-100® is around 20%, which typically results in annualized monthly at-the-money option premium of 2%.  Currently, implied volatility is closer to 30% and generating an implied at-the-money premium of nearly 3%, as at February 28, 2023.

Source: Bloomberg, as at February 28, 2023

QQCC doesn’t write at-the-money options. Instead, dynamically set options are written on about 50% of the portfolio, which is still generating a yield that is around 13.26% annualized based on the most recent distribution, as at February 28, 2023.

This is a considerable value add for this particular benchmark, since the NASDAQ-100® itself has historically, had a relatively small yield of less than 1%.  Call writing changes the dynamics of this benchmark entirely, and effectively can “super-charge” it as an income strategy that can be used to generate levels of yield that are largely non-correlated to traditional fixed income and also currently more than two times the current rate of inflation.

As we can also see in Table 1 performance chart, by preserving the upside potential on up to 50% of the portfolio, QQCC has been able to outperform the underlying NASDAQ-100® Index since the strategy was revamped on June 24, 2022, with its new investment objective.

Annualized Yield

Source: Bloomberg as at February 28, 2023, in CAD.

This example uses the estimated annualized yield of the ETF as at February 28, 2023 and the estimated annualized yield of the ETF’s underlying index benchmark exposure as at February 28, 2023.

Outperformance on a total return basis could be fleeting, and investors should maintain expectations that should the NASDAQ-100® have a strong upside rally from here, they could be giving up some upside total return potential by opting for QQCC versus a NASDAQ-100® Index ETF like HXQ.  However, this slippage is probably not as high as it could be, given how rich the premium is on NASDAQ-100® options.

This can make QQCC a powerful “portable yield” strategy – that is, a potentially powerful income replacement alternative to traditional income strategies. As long as an investor expects the NASDAQ-100® to generate positive capital returns over the next one to three years, then it can be a way to potentially generate higher levels of income to meet or exceed their personal portfolio yield targets.

When investors are thinking about income, they are likely not thinking about the NASDAQ-100®, but QQCC is proving it’s worth consideration!

Commissions, management fees and expenses all may be associated with an investment in exchange traded products (the “Horizons Exchange Traded Products”) managed by Horizons ETFs Management (Canada) Inc. The Horizons Exchange Traded Products are not guaranteed, their values change frequently and past performance may not be repeated. The prospectus contains important detailed information about the Horizons Exchange Traded Products. Please read the relevant prospectus before investing.

The payment of distributions, if any, is not guaranteed and may fluctuate at any time. The payment of distributions should not be confused with an Exchange Traded Fund’s (“ETF”) performance, rate of return, or yield. If distributions paid by the ETF are greater than the performance of the ETF, distributions paid may include a return of capital and an investor’s original investment will decrease.  A return of capital is not taxable to the investor, but will generally reduce the adjusted cost base of the securities held for tax purposes. Distributions are paid as a result of capital gains realized by an ETF, and income and dividends earned by an ETF are taxable to the investor in the year they are paid. The investor’s adjusted cost base will be reduced by the amount of any returns of capital. If the investor’s adjusted cost base goes below zero, investors will realize capital gains equal to the amount below zero. Future distribution dates may be amended at any time. To recognize that these distributions have been allocated to investors for tax purposes the amounts of these distributions should be added to the adjusted cost base of the units held. The characterization of distributions, if any, for tax purposes, (such as dividends/other income/capital gains, etc.) will not be known for certain until after the ETF’s tax year-end. Therefore, investors will be informed of the tax characterization after year-end and not with each distribution if any. For tax purposes, these amounts will be reported annually by brokers on official tax statements.  Please refer to the applicable ETF distribution policy in the prospectus for more information.

Certain statements may constitute a forward-looking statement, including those identified by the expression “expect” and similar expressions (including grammatical variations thereof). The forward-looking statements are not historical facts but reflect the author’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking statements. These forward-looking statements are made as of the date hereof and the authors do not undertake to update any forward-looking statement that is contained herein, whether as a result of new information, future events or otherwise, unless required by applicable law.

This communication is intended for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase exchange traded products (the “Horizons Exchange Traded Products”) managed by Horizons ETFs Management (Canada) Inc. and is not, and should not be construed as, investment, tax, legal or accounting advice, and should not be relied upon in that regard. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. These investments may not be suitable to the circumstances of an investor.

All comments, opinions and views expressed are generally based on information available as of the date of publication and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors

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