2025 has been a challenging year for investors so far. The S&P 500 (^GSPC -5.97%) and Nasdaq Composite (^IXIC -5.82%) have declined 3.5% and 8.7%, respectively, as of this writing as concerns about the Trump administration’s current and promised tariffs, sticky inflation, and elevated interest rates drove many investors away from macroeconomically sensitive stocks.
In this kind of market, it’s tempting to simply park your cash in a high-yield savings account, a certificate of deposit (CD), or some U.S. Treasuries and call it a year. That would be a prudent move, but there are still some simple ways to generate bigger gains, even if you expect the market to trade sideways for the foreseeable future.
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One popular way to profit in a stagnant market is to invest in an exchange-traded fund (ETF) that consistently writes covered calls to pay higher yields. Here’s a look at a popular one — the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ -5.58%) — to see why it might just be the smartest investment you can make today.
Why covered calls work in a sideways market
When you sell a covered call, you’re agreeing to sell a stock you own if it exceeds a certain price (the strike price) at a certain date (the expiration date). The person who buys that call pays you an upfront premium, but you’re obligated to sell the stock at the strike price if it trades above that price when the option expires. If it’s still trading below the strike price at its expiration date, you’ll keep both the stock and the premium as the option expires.
Covered calls will cap your gains in a bull market because the underlying stocks will likely be called away as they rise. But they can also backfire in a bear market if you hold your losing stocks for too long to earn those tiny premiums.
Therefore, a sideways market is usually a “Goldilocks” environment for covered calls. If your stocks keep trading within a narrow and predictable range, you can repeatedly write covered calls on them to squeeze out some extra income.
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Why JPMorgan’s ETF simplifies that process
You can repeatedly write covered calls on your own stocks to generate some extra income every week or every month, but that’s a time-consuming process that can cause you to prematurely sell some of your most promising stocks. It also won’t work unless you’ve already invested enough cash into an underlying position since you need to hold 100 shares of a stock to write a single covered call. Lastly, covered calls usually aren’t tax efficient, since every sale is taxed as a stand-alone trade.
The JPMorgan Nasdaq Equity Premium Income ETF addresses all of those issues with a simple ETF that holds 108 stocks. It roughly mirrors the Nasdaq-100‘s holdings, and its top positions include Apple, Nvidia, Microsoft, and Amazon.
It charges a relatively low net expense ratio of 0.35% and boosts its monthly dividends by selling calls on the Nasdaq-100 each month. The ETF pays a 12-month rolling dividend yield of 10.4%. Instead of writing individual covered calls, the ETF uses equity-linked notes (ELNs), which are pinned to those options but can be traded at a more tax-efficient rate.
Therefore, this ETF should hold steady and keep paying out high dividends as long as the Nasdaq-100 doesn’t rally significantly over the next few months. It would certainly underperform the Nasdaq-100 if it surges higher but will keep paying a much higher yield than most fixed-income investments.
Is this the smartest investment for a sideways market?
The JPMorgan Nasdaq Equity Premium Income ETF probably isn’t the ideal long-term investment, since covered calls will slump during raging bull markets. But if you’re looking for a reliable 10% yield in a sideways market, it could be a brilliant investment.
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