Please stay tuned for important disclosure information at the conclusion of this episode.

Welcome to Investing Insights. I'm your host, Ivanna Hampton. The chase for higher equity yields with lower risk is boosting the popularity of cover call ETFs.

More than $100 billion have flowed into the funds over the last three years,

according to Morning Star data.

Cover-Call ETFs produce higher income, but it comes at a cost.

Retirees and other income investors need to be aware of the trade-offs they're making forward.

Joining me is Dan Satereoff, a senior manager research analyst for Morningstar Research Services.

The editor of Morningstar's ETS investor newsletter is here to explain the risk and rewards

of cover call ETFs.

Good to see you, Dan.

It's good to see you, too, Ivana.

Well, let's start.

What are cover call ETFs and how do they work? Yeah, covered calls aren't really anything new. This is a strategy that's been used by a lot of traders in the options markets for decades now. They're relatively new to ETFs. So in the past decade, we've sort of seen them slowly roll out. In the past five years, we've really seen a lot of them hit the market. So what are they exactly? The strategy basically

consists of owning an sort of seen them slowly roll out. In the past five years, we've really seen a lot of them hit the

market. So what are they exactly? The strategy basically consists of owning an underlying

asset. That could be a single stock. It could be an index like the S&P 500 index or NASDAQ 100,

excuse me. And then you're writing or selling a call option on top of that asset that you own.

The option works a lot like an insurance contract, and that's the important thing to remember

here.

So you're selling that contract to another trader, and they're going to pay you a premium to get

access to that contract, right?

And that's where the income is coming from.

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