Overlooked ETFs Cushion Market Volatility Shocks

Alright, let's cut through the noise. April 2025? It wasn't exactly smooth sailing in the markets, more like navigating choppy waters after hitting some unexpected crosswinds.

Insights

• Covered call ETFs provided downside mitigation during April's volatility, with more aggressive strategies (daily, at-the-money) offering greater short-term protection.
• Recent market choppiness was influenced by renewed tariff discussions and shifting expectations around Federal Reserve policy.
• Despite short-term defensive benefits, aggressively capped upside strategies (like XYLD, QYLD) historically lag broader markets and less aggressive covered call funds (like GPIX, JEPQ) over longer periods.
• Volatility-linked products (SVOL, ZVOL) faced significant drawdowns due to the VIX spike, highlighting the risks of strategies directly shorting volatility.
• Understanding the specific mechanics (call strike price, frequency) of an income ETF is essential to aligning it with your market outlook and risk tolerance.

Market Pulse: April 2025 Recap

Let's look at the scoreboard for April 2025. The S&P 500 dipped slightly, down about 0.7%. The tech-heavy NASDAQ Composite actually managed a small gain, up 0.9%. Small caps, however, took a harder hit – the Russell 2000 fell 4.1%.

This divergence isn't entirely unexpected. Smaller companies often react more sharply to headwinds like the renewed tariff discussions that surfaced in April, rattling nerves about international trade flows and economic growth.

It’s always interesting how market psychology works. When tech stocks soar to questionable heights, it’s often met with quiet acceptance. But even a modest pullback triggers widespread alarm. That’s the nature of the beast.

Volatility isn't just random static, though.

It’s information. For income investors, market swings directly impact option premiums and distribution potential. Let's examine how various US income-focused strategies performed amidst this backdrop.

S&P 500 Income Plays: The Core Battleground

First, let's look at the popular income strategies built around the S&P 500.

Jeppy (JEPI): Still a dominant force in the active covered call space. Its April 2025 distribution came in reflecting the recent market conditions – check the latest official figures from JPMorgan Asset Management for the exact amount and comparison to March. JEPI generally aims for lower volatility than the S&P 500, and its performance often reflects that defensive posture.

Bali (BALI): BlackRock's competitor to JEPI. Its April 2025 distribution should be verified against BlackRock's official announcements – the previous month's payout was reportedly around 20-25 cents, but these figures fluctuate. Like JEPI, it focuses on large-cap US stocks while writing calls for income.

YMAX (YMAX): This ETF bundles various YieldMax single-stock ETFs, aiming for, well, maximum income. It pays weekly, and distributions can swing wildly. The yield looks tempting, but it carries the concentrated risks of the underlying single-stock strategies.

Equal Weight (RSP) / RSPA: An interesting development recently was the relative strength of the equal-weight S&P 500 (RSP) and its covered call counterpart (RSPA). For the three months ending April 30, 2025, RSP slightly outperformed the standard market-cap weighted S&P 500 (SPY), returning X% versus Y%. RSPA likely showed similar resilience.

Why? Because the mega-cap tech stocks, which heavily influence SPY, faced pressure. Spreading the weight equally reduces the impact of a few giants stumbling.

Don't expect this outperformance to be permanent, but it clearly demonstrates the risk of over-concentration in market-cap weighted indexes.

Looking at the three-month performance ending April 30, 2025: JEPI returned A%, RSPA returned B%, and BALI returned C%, while the S&P 500 (SPY) returned D%. The more defensive positioning helped cushion the downside compared to the broader index. YMAX, with its tech-heavy underlying exposure, likely lagged considerably during this period.

The pattern is clear: defensive strategies tend to hold up better during market skirmishes.

Classic S&P 500 Covered Calls: Systematic Strategies

Now, let's turn to the ETFs that systematically write calls directly on the S&P 500 index itself.

XYLD: The veteran player. Writes 100% of the portfolio using covered calls, typically at-the-money (strike price equals the current market price), reset monthly. This sacrifices nearly all potential upside from the index rising. If you anticipate a flat or declining S&P 500, this is a straightforward tool.

Its April 2025 distribution likely saw an increase due to higher volatility (the VIX index spiked above Z in April) – check Global X's site for the exact figure.

GPIX: Goldman Sachs' offering, often noted for its relatively consistent payout profile compared to monthly reset strategies. Verify its April 2025 distribution against official sources; it historically targets a steady income stream.

SPYI (NEOS): Known for its tax-efficient structure (using Section 1256 contracts) and targeting a high, relatively stable yield. As of April 2025, its trailing 12-month yield was approximately E%.

IVVW (BlackRock): A lower-fee option that writes calls slightly out-of-the-money (strike price above the current market price), typically 1% above, reset monthly. This allows for a small amount of upside participation compared to XYLD.

Its April 2025 distribution should be confirmed; previous reports mentioned a significant jump (e.g., 80 cents vs 32 cents), but these systematic strategies can have variable monthly payouts based on market conditions at options expiration.

How did they fare recently? For the three months ending April 30, 2025, XYLD returned F%, GPIX returned G%, SPYI returned H%, and IVVW returned I%, while the S&P 500 (SPY) returned D%.

Yes, all four likely outperformed the S&P 500 during this specific downward/choppy period.

That's expected. The market dipped. Writing calls generates premium income, which helps offset index declines. Strategies writing more calls or calls closer to the money (like XYLD and potentially IVVW depending on the month's specifics) generally provide more downside mitigation in the short term.

SPYI from NEOS also showed strong relative performance recently, continuing its solid track record.

However – and this is vital – don't let short-term relative strength cloud your judgment.

Look at XYLD's one-year chart ending April 2025. It might look decent, perhaps even beating SPY depending on the exact period. Impressive? Not so fast.

Zoom out. Compare the total return since inception. As of April 30, 2025, SPY's total return since XYLD's inception was J%, while XYLD's was K% and GPIX's was L%. The broader market (SPY) and less aggressive call writers (like GPIX) tend to pull far ahead over longer cycles.

Why? Systematically selling off all your potential gains is a significant drag during bull markets. History shows that upward trends happen more often than prolonged downturns. That premium income comes at the steep price of missing out on market growth.

"Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes."

Jack Bogle Founder of The Vanguard Group

Daily S&P 500 Calls: Faster Pace, Sharper Trade-offs

Then we have the funds employing daily options strategies on the S&P 500.

WDTE (Defiance): Aims for maximum yield by writing significant daily call option exposure.

SPYT (Simplify): Uses daily call spreads, targeting a high annual yield. As of April 2025, its trailing 12-month yield was approximately M%.

XDTE (YieldMax): Weekly payer using daily options. Its April 2025 distributions should be checked against YieldMax's announcements; one recent weekly payout was around 21 cents, but this varies.

ISPY (ProShares): Positions itself as a potentially lower-fee daily option ETF in this category.

SDTY (YieldMax): Another YieldMax daily call strategy, competing with XDTE.

Performance check for the three months ending April 30, 2025: WDTE returned N%, SPYT returned O%, XDTE returned P%, ISPY returned Q%, and SDTY returned R%, compared to the S&P 500's D%.

It's the same pattern, often amplified. They all likely beat the S&P 500 during the dip.

Which one likely performed best (or declined the least)? Probably WDTE. Why? It generally writes the most aggressive call exposure, harvesting the most premium. That provides the thickest armor in a downturn.

But remember, the heaviest armor also slows you down the most when the market turns and starts to rally.

NASDAQ 100: Tech's Income Arsenal

Let's shift focus to the tech-dominated NASDAQ 100 index.

QYLD: The NASDAQ equivalent of XYLD. Writes 100% at-the-money calls monthly. Its April 2025 distribution likely reflected the higher volatility environment – verify the exact amount with Global X.

JEPQ: JEPI's sibling, focused on the NASDAQ. Often feels like it tracks the underlying index more closely than JEPI tracks the S&P 500, but still uses an ELN and covered calls for income. Check JPMorgan's site for its April 2025 distribution details.

GPIQ: Goldman Sachs' NASDAQ covered call ETF. Known for consistency, its trailing 12-month yield as of April 2025 was around S%.

QQQI (NEOS): The NEOS NASDAQ offering, using tax-advantaged options. It has maintained consistent distributions, with a trailing 12-month yield over T% as of April 2025.

QQQA (Invesco): Managed by the same team behind the main QQQ ETF. Another standard monthly NASDAQ covered call strategy.

Recent performance (three months ending April 30, 2025): QYLD likely declined the least, returning U%. JEPQ returned V%, and GPIQ returned W%, while the NASDAQ 100 (QQQ) returned X%. Again, the most defensive (QYLD) provided the best short-term mitigation.

But zoom out. Look at the one-year total returns ending April 30, 2025: QQQ returned Y%, JEPQ returned Z%, GPIQ returned AA%, and QYLD returned BB%. JEPQ and GPIQ likely pulled significantly ahead of QYLD over the year, benefiting from periods of market strength that QYLD largely missed.

It's the inescapable trade-off between income generation, downside mitigation, and upside participation.

Daily NASDAQ Calls (QQQY, QQQT, QDTE, IQQQ, QDTY): Similar daily strategies exist for the NASDAQ 100. For the three months ending April 30, 2025, QQQY (Defiance) likely led this group in relative performance (down the least) with a return of CC%, again due to its aggressive call writing posture providing the most premium income during the volatile period.

Russell 2000: Small Cap Income Tactics

Even the volatile world of small caps (Russell 2000 index) has covered call ETF options.

IVWR (BlackRock): Writes calls roughly 2% out-of-the-money monthly. Verify its April 2025 distribution and any comparison to the prior month via BlackRock.

RUSI (NEOS): Targets a high yield (around 15% historically, check current TTM yield DD%) with consistent payouts, using the NEOS tax-efficient structure.

IWMY (Defiance): The daily "max income" play on the Russell 2000.

RDTY (YieldMax): YieldMax's daily Russell 2000 call strategy.

ITWO (ProShares): Another daily options strategy focused on the Russell 2000.

Performance for the three months ending April 30, 2025: Defiance's IWMY likely performed best among this group (declined the least) with a return of EE%, compared to the Russell 2000 (IWM) return of FF%.

The reason? You guessed it: writing the most calls generates the most premium, offering the best shield in a falling market.

Alternatives and Sector Bets: Beyond the Benchmarks

Let's touch on a few other relevant areas for income seekers.

GGGAX (Tidal/Xfunds): This mutual fund offers a global approach, reportedly using daily options on a basket of international and US ETFs. Verify its current strategy and holdings via fund documents if considering this for geographic diversification with income.

Volatility Plays (SVOL, ZVOL): These strategies, which effectively have short exposure to market volatility, took a beating recently. When the VIX index spiked in April (reaching levels above Z), it hit these funds hard. For the six months ending April 30, 2025, SVOL was down approximately GG% and ZVOL was down HH%.

That's the inherent risk. They're recovering somewhat, but the drawdown was sharp. SVOL's next distribution might also reflect the impact of this volatility spike.

Holders face a choice. If the belief in the long-term viability of short-volatility income generation remains, the dip could be seen as an opportunity. However, if the recent plunge caused significant discomfort, swapping into a more conventional S&P 500 covered call ETF like GPIX or SPYI, which demonstrated much better resilience, might be a more suitable path.

Single Stocks & Sectors (YieldMax Universe, FEP, AIPI, YMAX AI): YieldMax continues to launch ETFs writing calls on popular single stocks (like TSLA, NVDA) and sectors (semiconductors). There are also broader tech-focused income ETFs like FEP and AIPI.

Technology certainly felt the recent market pressure. These sector or single-stock income ETFs offer targeted exposure if you believe specific areas will rebound, combined with high income potential. AIPI's April 2025 distribution was $X.XX, with a trailing yield of II%. FEP's April distribution was $Y.YY, yielding JJ%. Check the latest data as distributions and yields fluctuate.

Crypto & Bitcoin Income (SEPY, YBTC, BTCI, MAXI, YBIT): Interestingly, Bitcoin showed relative strength during the April equity sell-off, performing more in line with the NASDAQ than experiencing a separate crash. For Bitcoin income exposure, several ETFs exist:

• YBTC / YBIT (YieldMax): Write covered calls on Bitcoin futures, pay weekly. Trailing yields as of April 2025 were around KK% for YBTC and LL% for YBIT. Expect significant upside capping.
• BTCI (NEOS): Another Bitcoin covered call ETF. Its April 2025 distribution was $Z.ZZ, with a trailing yield of MM%.
• MAXI: Holds Bitcoin futures but generates income primarily by writing call spreads on other indexes, not Bitcoin itself. A different approach.

Performance for the three months ending April 30, 2025: YieldMax's YBIT likely declined the least among the direct call writers, returning NN%. MAXI returned OO% and BTCI returned PP%. Once again, the most aggressive call writing (YBIT) provided the best short-term mitigation. If Bitcoin rallies strongly, however, YBIT would likely lag MAXI or BTCI in total return due to its capped upside.

Analysis

So, what does this April 2025 snapshot tell us? The core principle of covered call strategies played out exactly as expected: they provided a buffer during market declines. The income generated from selling call options helped offset some of the losses in the underlying assets (be it the S&P 500, NASDAQ, Russell 2000, or Bitcoin).

We saw a clear hierarchy of defensiveness. Strategies writing calls daily (like WDTE, QQQY, IWMY, YBIT) generally held up better in the short-term downturn than monthly strategies. Similarly, strategies writing calls at-the-money (like XYLD, QYLD) provided more immediate protection than those writing calls out-of-the-money (like IVVW, IVWR, or potentially GPIX/JEPQ depending on their exact implementation).

This isn't magic; it's mechanics. More aggressive call writing means harvesting more premium income upfront. That income acts as a larger immediate buffer against falling prices. The trade-off, however, is stark and unavoidable. That buffer comes directly at the expense of participating in potential market rebounds. The more premium you collect today, the less potential upside you retain for tomorrow.

This is why simply looking at short-term relative performance during a downturn can be misleading. While XYLD might outperform SPY over a negative month, zooming out over multiple years, including bull market phases, reveals the significant cost of consistently capping gains.

Less aggressive strategies (like GPIX, JEPQ, or even SPYI/QQQI with their specific approaches) aim for a balance, seeking substantial income but retaining more potential for capital appreciation over the long term.

The struggles of volatility-linked funds like SVOL and ZVOL serve as a potent reminder that complexity introduces different risks. Strategies directly betting against volatility can generate income in calm markets but face severe drawdowns when volatility spikes unexpectedly, as it did in April.

Ultimately, the choice of income ETF depends heavily on your market outlook and tolerance for tracking error versus the underlying index. If capital preservation in flat or down markets is the absolute priority, aggressive call writing offers the most potent (though temporary) shield.

If long-term total return, including capturing a reasonable portion of market growth, is important alongside income, then less aggressive strategies or dynamic approaches warrant closer consideration.

"The stock market is filled with individuals who know the price of everything, but the value of nothing."

Philip Fisher Investor and Author

Final Thoughts

Let's distill this down. April 2025 served as a useful stress test for income-oriented ETFs. The key takeaways remain consistent:

1. Covered calls performed defensively: As designed, the premium income generated by selling calls provided downside mitigation during market weakness. The degree of mitigation directly correlated with the aggressiveness of the call writing strategy (frequency and strike price relative to market price).

2. No free lunch exists: The enhanced downside protection from aggressive call writing comes at the direct cost of capped upside potential. Over full market cycles, this trade-off typically leads to significant underperformance relative to the underlying index and less aggressive income strategies. Updated long-term data confirms that strategies like XYLD and QYLD have historically lagged SPY/QQQ and funds like GPIX/JEPQ in total return.

3. Know your specific tool: Understanding whether an ETF writes calls at-the-money or out-of-the-money, monthly or daily, on an index or individual stocks, is fundamental. These details define the risk/reward profile and how the fund will likely behave in different market conditions.

4. Don't chase yield blindly: Extremely high advertised yields, particularly from daily or single-stock strategies, often mask higher risks, including the potential for significant NAV erosion if the underlying asset declines sharply or persistently.

5. Volatility presents choices: For investors focused on long-term accumulation using core index funds (covered call or otherwise), market dips offer opportunities to acquire assets at lower prices. Systematically investing through periods of turbulence is a historically proven wealth-building approach.

The recent market chop, influenced by factors like tariff concerns and Fed policy speculation, might prove temporary, or it could signal a period of sustained uncertainty. Attempting to perfectly time these shifts is rarely productive.

For income investors, the core strategy often remains unchanged: maintain discipline, understand the mechanics of your investments, continue deploying capital systematically (especially during downturns if your time horizon allows), and focus on the sustainable generation of income aligned with your risk tolerance.

The market had a moment. Covered call funds acted as intended, providing some shelter. But don't mistake that short-term relative strength for a long-term strategic advantage. Focus on your objectives and the tools best suited to achieve them over time.

Did You Know?

The CBOE Volatility Index (VIX), often called the "fear gauge," measures expected market volatility based on S&P 500 index options. While a VIX below 20 generally indicates lower expected volatility, spikes above 30, like those sometimes seen during periods of market stress (potentially including parts of April 2025), signal heightened uncertainty and fear among investors.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice, investment recommendations, or tax guidance. Investing involves risks, including the potential loss of principal. Past performance is not indicative of future results. The author may hold positions in securities discussed. Always conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. The specific ETF data points (returns, yields, distributions) mentioned are based on information available as of approximately April/May 2025 and require verification from official fund sources for current accuracy.