Kiwoom Asset Management launched the KIWOOM KOSDAQ150 Covered Call Active ETF on the KOSPI market on January 30, according to Korea Exchange data released on the 4th. The ETF invests in KOSDAQ150 constituent stocks while simultaneously selling call options to secure option premiums. The strategy sacrifices a portion of potential upside gains in exchange for building distribution income sources during periods of heightened volatility, targeting investors seeking regular income from South Korea's growth stock benchmark index.
KIWOOM ETF Combines KOSDAQ150 Stocks with 30% Call Option Selling Strategy
The KIWOOM KOSDAQ150 Covered Call Active ETF uses the KOSDAQ150 index as its underlying asset. The product maintains a stock portfolio composed of KOSDAQ150 constituent stocks and combines it with a KOSDAQ150 call option selling strategy.
The benchmark index is the KOSDAQ150 Weekly Fixed 30% Covered Call Index. This index is calculated by adding KOSDAQ150 call option short positions to a physical portfolio of KOSDAQ150 constituent stocks. The call options are selected from listed options in the KOSDAQ150 options market with the nearest expiration date. Among these, the index targets two options with strike prices at or above the day's KOSDAQ150 closing index level and closest to the index value.
The core element is the option selling ratio. The benchmark index constructs call option short positions at 30% of the total stock portfolio's notional amount. The remaining 70% follows the KOSDAQ150 stock price movement. The option short positions are rebalanced twice weekly.
Active Management Allows Flexible Adjustment of Covered Call Ratio
The actual ETF is managed using an active approach. This means the covered call ratio can be flexibly adjusted according to market conditions. For example, during strong upward trends in KOSDAQ150, the fund can lower the call option selling ratio to more actively pursue capital gains from stock price appreciation. Conversely, during periods of increased market volatility, the fund can raise the option selling ratio to expand premium income and use it as a source for distributions.
Covered call ETFs generally show relative strength in sideways or volatile market conditions. This is because they can secure income sources through option selling premiums even when stock prices do not rise significantly. The assessment is that using an index with high volatility like KOSDAQ150 can increase the opportunity to secure option premiums.
Tax-Exempt Option Premiums and Monthly Dividend Target
The tax treatment is noted as a distinctive feature of the product structure. Capital gains from domestic derivatives receive tax-exempt status, so premium income from option selling positions is also excluded from taxation.
The ETF pursues regular monthly dividends. The total expense ratio is 0.63% annually.
Lee Kyung-jun, head of the ETF Management Division at Kiwoom Investment Asset Management, stated, "Recently, the KOSDAQ market has seen heightened reevaluation expectations as policy changes continue to expand supply and restore market confidence. We expect this to be an investment alternative that can pursue both distributions and index upside participation by flexibly adjusting the option selling ratio according to market conditions."
Strategy Caps Upside in Strong Bull Markets
Investors should note certain considerations. The covered call strategy may limit returns in rapidly rising markets. When stock prices rise quickly, the physical portfolio generates profits, but the call option short positions make it difficult to fully capture additional upside.
Conversely, in declining markets, option premiums can provide some cushioning effect, but the structure does not fully defend against declines in the underlying asset price itself.
FAQ
What did Kiwoom Asset Management launch on January 30?
Kiwoom Asset Management launched the KIWOOM KOSDAQ150 Covered Call Active ETF on the KOSPI market on January 30, according to Korea Exchange data released on the 4th. The ETF invests in KOSDAQ150 constituent stocks while simultaneously selling call options at 30% of the total stock portfolio's notional amount.
How does the active management approach work in this ETF?
The ETF uses active management to flexibly adjust the covered call ratio according to market conditions. During strong upward trends in KOSDAQ150, the fund can lower the call option selling ratio to pursue capital gains. During periods of increased volatility, the fund can raise the option selling ratio to expand premium income for distributions.
What is the tax treatment for option premiums in this ETF?
Capital gains from domestic derivatives receive tax-exempt status under Korean tax rules, so premium income from the ETF's option selling positions is excluded from taxation. The ETF targets regular monthly dividends and has a total expense ratio of 0.63% annually.
