KB Asset Management Launches Korea's First Weekly Covered Call ETF on KOSPI 200

KB Asset Management will launch the ‘KBSTAR 200 Weekly Covered Call ETF’ on the 5th, aiming to pay a monthly dividend of around 1%. This exchange-traded fund (ETF) is the first among ETFs using domestic indices to apply a ‘weekly covered call’ strategy, which involves selling call options with maturities of less than one week.

A covered call is a representative options investment strategy that involves buying the underlying asset and simultaneously selling call options on that asset. Using covered calls cushions losses by the amount of the option premium when stock prices fall, while limiting returns to a certain level when stock prices rise.

Weekly options, which expire every week, have lower volatility but higher premiums compared to regular options with one-month maturities, allowing for higher income when sold.

The ‘KBSTAR 200 Weekly Covered Call ETF’ is the first ETF product to track the ‘KOSPI 200 Weekly Covered Call ATM Index,’ jointly developed by KB Asset Management and the Korea Exchange. Accordingly, it has been granted priority usage rights for the index by the Korea Exchange, giving it exclusive status related to the launch until early September this year, marking six months since its listing.

Since the KOSPI 200 Weekly Covered Call ATM Index was calculated in 2019, the average monthly option premium has been around 3%. Notably, the monthly average option premium has never fallen below 1% since the index’s inception.

This product is also advantageous in terms of tax benefits compared to other covered call ETFs based on overseas assets or investment assets such as time deposits, bonds, and equity-linked securities (ELS). Only the dividend income (0.16% per month) generated from the KOSPI 200 stocks invested in by the ETF is subject to taxation, while most of the distribution’s source?capital gains from stock trading and income from option sales?is tax-exempt.

Furthermore, it can be invested in up to 100% through Individual Savings Accounts (ISA) and personal pension accounts, and up to 70% through retirement pension accounts.

Kim Chan-young, Head of the ETF Business Division at KB Asset Management, said, “The ‘KBSTAR 200 Weekly Covered Call ETF’ is a recommended ETF for investors seeking stable monthly distributions of about 1% per month, or 12% annually. It will also be an even more attractive investment for those who want to receive distributions but are concerned about the combined taxation of dividend income tax and comprehensive income tax that occurs each time.”