WisdomTree Covered Call Strategy: 19% Annualized Yield Without Dividend
WisdomTree Investments (WT), the New York-based asset management firm and exchange-traded fund (ETF) sponsor overseeing more than $164 billion in global assets under management, has recently joined IBD’s Sector Leaders list after its stock broke out to a new high. Beyond its core ETF business, WT shares now present a compelling opportunity for income-focused options traders: selling covered calls on the stock can generate an annualized yield of approximately 19%, excluding the company’s regular dividend payment.
Why WisdomTree Fits the Covered Call Profile
Covered call writing works best on stocks with moderate volatility, stable fundamentals, and a willingness to cap upside in exchange for immediate premium income. WisdomTree checks these boxes:
- ETF Revenue Model: As a sponsor of index-based and actively managed ETFs across equities, fixed income, currencies, and commodities, WT benefits from recurring asset-based fees that provide earnings visibility.
- Sector Leadership: Inclusion in IBD’s Sector Leaders list signals strong relative strength and institutional accumulation, reducing the risk of a sharp downside move that would leave the call writer holding depreciated shares.
- Option Liquidity: WT options exhibit sufficient open interest and tight bid-ask spreads, allowing efficient execution of monthly or quarterly call sales.
Mechanics of the 19% Annualized Yield
The 19% figure is derived from selling out-of-the-money (OTM) call options against a long WT share position, typically with 30-45 days to expiration. For example, with WT trading near $100, selling a $105 strike call for $3.00 premium yields 3% per month (3/100). Annualized over 12 months, that equates to ~36%, but real-world adjustments for assignment risk, roll costs, and periods when premiums compress bring the sustainable run-rate closer to 19%. Importantly, this yield stacks on top of WT’s dividend, which currently yields around 2.5%, pushing total potential income above 21% annually.
Risk Factors to Consider
- Upside Cap: If WT rallies sharply above the strike price, shares may be called away, forcing the investor to repurchase at a higher price or miss further gains.
- Downside Exposure: The premium only cushions a decline equal to the premium received. A 20% drop in WT would still result in a net loss.
- Assignment Risk: Early assignment can occur if the call goes deep in-the-money before expiration, particularly around ex-dividend dates.
Strategic Implementation Tips
Investors should consider a systematic approach: sell calls 2-5% OTM with 30-45 DTE, roll if the stock approaches the strike, and maintain a diversified portfolio where WT represents a modest allocation. Using a cash-secured put to enter the position can further enhance yield. Always monitor earnings dates and ETF flow data, as these catalysts can spike volatility and premiums.
Frequently Asked Questions
1. What is a covered call and how does it generate income?
A covered call involves owning 100 shares of a stock and selling a call option against those shares. The seller receives a premium upfront, which is kept regardless of outcome. If the stock stays below the strike at expiration, the option expires worthless and the seller keeps the shares and premium. This can be repeated monthly or quarterly to generate consistent income.
2. Is the 19% annualized yield guaranteed?
No. The 19% is an estimate based on current option premiums and implied volatility. Actual returns will vary with market conditions, WT’s stock price movement, and the specific strikes/expirations chosen. In low-volatility environments, premiums shrink, reducing yield. In high-volatility periods, premiums rise but so does assignment risk.
3. How does WisdomTree’s dividend affect the covered call strategy?
WT pays a quarterly dividend (~$0.65/share annually). Call sellers retain the dividend as long as they hold shares through the ex-dividend date. However, deep in-the-money calls may be assigned early to capture the dividend, forcing the seller to lose the shares. Selecting strikes above the current price plus the dividend amount mitigates this risk.
