Simeon Hyman

Simeon Hyman has been in asset and wealth management for about 30 years and has spent over a decade at ProShares, which manages roughly $65 billion in ETFs. ProShares made its name with leveraged and inverse products but has built out a significant strategic buy-and-hold business, including the S&P 500 Dividend Aristocrats ETF (ticker NOBL) and, more recently, ISPY, their daily covered call ETF on the S&P 500. Simeon serves as the global investment strategist, connecting portfolio construction research to product development.

On this episode, recorded live at the Exchange ETF conference, Simeon breaks down exactly how ISPY's daily covered call mechanism works, why it captures meaningfully more upside than traditional monthly covered call strategies, and where it fits in a portfolio.

The Problem with Monthly Covered Calls

Simeon starts by identifying the core flaw in traditional monthly covered call strategies. When you write a call option once a month and the underlying index rallies early in that period, you've already sold away your upside for the remainder of the month. For the remaining 27-28 days, you have zero additional participation in gains. The data makes this concrete: the BXM index (the CBOE monthly buy-write benchmark) captured less than half the S&P 500's upside in 2023, returning roughly 11% versus the S&P's 26%. That's a lot of upside left on the table for a strategy that's supposed to provide income alongside equity exposure.

This is the problem ISPY was designed to solve. By writing a new covered call every single day rather than once a month, the fund gets another "nibble at the upside" each morning. If the S&P rallies today, tomorrow you write a new call at a higher strike price, so you're participating in that new starting point. The daily reset means the fund tracks the S&P 500's price movement much more closely than monthly strategies while still generating competitive option premium income.

How ISPY Works Under the Hood

ISPY owns all 500 stocks in the S&P 500. The daily call options are executed through swap contracts, which Simeon explains is more efficient than buying and selling individual options contracts each day but produces exactly the same economic outcome for the investor. The ETF tracks the S&P 500 Daily Covered Call Index, making the process systematic and rules-based rather than discretionary.

Daily options (also known as zero-DTE options) only became available about 18 months before this recording, making ISPY the first ETF powered by a daily covered call strategy. The fund pays monthly distributions. At the time of recording, the first distribution implied an annualized yield of a little over 11%, which is competitive with traditional monthly covered call strategies like XYLD and QYLD. The critical difference is that ISPY investors aren't giving up nearly as much price appreciation to earn that yield, because the daily reset preserves their participation in the market's upward movement.

Simeon emphasizes that ISPY carries the full downside risk of the S&P 500. It's an equity product, not a fixed income substitute or a capital preservation vehicle. When stocks go down, ISPY goes down with them. But he argues that in an environment where the 10-year Treasury is at 4%, bonds are finally doing their job as portfolio diversifiers again. Investors should stay in strategies that offer genuine equity exposure and use bonds for protection rather than reaching for lower-volatility equity alternatives that sacrifice too much upside.

Portfolio Positioning

Simeon positions ISPY squarely in the core equity allocation, not in the income sleeve or the alternatives bucket. Traditional monthly covered call strategies, with their significant upside cap, end up in a no-man's-land between stocks and bonds. They give up too much equity upside to serve as a growth allocation but carry too much equity risk to serve as a bond replacement. ISPY's daily mechanism preserves enough upside to behave like a true equity holding while generating income that can fund RMDs, distributions, or other regular cash needs without forcing the advisor to sell shares.

He acknowledges that if interest rates fall back toward zero, the income from ISPY would decrease along with options premiums across the entire market. But he expects that the post-QE normalization of rates will keep options premiums elevated relative to the near-zero environment of the prior decade, making daily covered call strategies structurally more attractive than they would have been in 2020 or 2021.

Key Takeaways

• ISPY is the first ETF powered by a daily covered call strategy, writing new options every trading day rather than once a month to preserve significantly more equity upside participation.
• The traditional BXM monthly buy-write index captured less than half the S&P 500's 2023 return (roughly 11% vs. 26%), illustrating the upside sacrifice that daily writing is designed to solve.
• ISPY pays monthly distributions with an initial annualized yield of about 11%, competitive with traditional covered call funds but without surrendering as much price appreciation potential.
• The fund carries full S&P 500 equity risk and is positioned for the core equity allocation, not as a fixed income replacement or capital preservation tool.
• Daily call options (zero-DTE) have only existed for roughly 18 months, making this an entirely new product category that wasn't possible before the introduction of same-day expiry options.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.