Summary Covered call ETFs offer abnormal income and access to asset classes lacking yield, though downside protection is rarely effective in practice. Alpha generation is not the goal; these funds suit investors prioritizing high income or absolute return over chasing alpha. However, not all covered call ETFs can do this job. In this article, I highlight 2 covered call ETFs that could sooner or later damage your portfolio. There are three strategic reasons why we could consider covered call ETFs: Portfolio yield (income) enhancement. Access to unexplored asset classes without suffering a yield drag. Slight downside protection under certain market conditions (rarely works). It would be wrong to expect alpha performance from covered call ETFs. It would also be wrong to express a bullish view on a particular asset class if the expectation was that the price could surge in the near term. The upside cap that is associated with sold covered call options is what limits gains. However, we could take the covered call ETF investment game to another level if we could capture relatively stable income streams and solid absolute total return levels. The former is obvious: Who wouldn't want to enjoy high and stable dividends? The latter is more conceptual and may be more applicable to income investors looking to grow their dividend portfolios in a less risky fashion (rather than chasing record-breaking performance). It is difficult to implement in practice, but the key ingredients to this recipe are the following: Value-oriented, less cyclical underlying index on which options are formed. Out-of-the-money options to avoid potential NAV drag that might occur right after steep drawdowns, where a tightly capped covered call ETF might completely lose out on the recovery. Leverage-free. As I have elaborated on this in some of my previous articles , there are not that many covered call ETF vehicles that tick these boxes. My Top 3 picks are the NEOS Real Estate High Income ETF ( IYRI ), the NEOS MLP & Energy Infrastructure High Income ETF ( MLPI ) and the NEOS Gold High Income ETF ( IAUI ) - all underpinned by OTM processes and value-oriented underlying exposures. In this article, I would like to present two covered call ETFs that embody the inverse characteristics and would therefore never be considered in my portfolio. I also think that this is the right moment to ditch both of these vehicles. #1: QQQH The NEOS Nasdaq-100 Hedged Equity Income ETF ( QQQH ) is an actively managed covered call ETF that tracks and constructs option exposures on the Nasdaq-100 ( QQQ ). Optically, it is very similar to NEOS's largest and, arguably, the most well-known covered call ETF - the NEOS Nasdaq-100 High Income ETF ( QQQI ). What QQQI does is it sells OTM covered call options on QQQ with an average duration of 30 to 45 days, 10% to 20% above QQQ's strike. Of course, as it is dynamically managed, these exposures can vary depending on market conditions and management views. Since QQQH goes long QQQ and writes OTM calls on this index, we are talking about quite similar exposures. Also, the expense ratios are identical at 0.68%. Yet, the results are vastly different. Take a look at the chart below: YCharts QQQH has underperformed both QQQ and its sister ETF, QQQI. And this underperformance has happened on two different occasions (periods): From July 2025 to February 2026, when the market was upward-trending. From April 2026 up until now, when the market was skyrocketing. While QQQH was lagging behind QQQ and QQQI, it was also producing subpar dividends, yielding about 8.5%, which is, in my view, unacceptable given the exposure to an inherently volatile index and the price paid in terms of foregone upside potential. The reason for this is very simple. On top of the "QQQI features", QQQH adds a put spread into the equation. It entails both long put options (higher strike) and short put options (lower strike) on the same underlying against which the covered calls are sold - i.e., QQQ. The result of this is that we get a hedged downside, which comes at the cost of paying net premiums. These put spread-related net premiums directly erode the income potential that stems from the first move (i.e., selling a covered call on QQQ). Plus, what I find interesting is that in order to secure this hedge and still pay a relatively high yield, QQQH has been selling quite tight covered calls. Namely, as opposed to QQQI and some other OTM covered call ETF peers, QQQH writes call options that are very close to the money. Currently, the call options are just 7% out of the money, which is rather tight given the recently realized ~5% pullback. This introduces an even bigger risk of serious underperformance if the markets recover or keep surging higher. So the risks of buying QQQH are the following: Structurally unattractive yield compared to other OTM covered call ETFs that track the same underlying. Total return drag in times of upwards sloping markets. Notable underperformance in the case of surging or quickly recovering markets. Sure, QQQH can deliver better downside protection right in the moments of market declines, but a) the level of protection is not that big, and b) the risk of lagging behind, say, QQQI when the market bounces back is extremely high. YCharts In a nutshell, I don't see how QQQH's extra protection offering outweighs the drawbacks that come in the form of reduced yield, structural underperformance risk, and, frankly, immaterial hedges. #2: BTCI While I could see some argument for including QQQH in a portfolio (short-term bet to ride out a mild storm in QQQ), the NEOS Bitcoin High Income ETF ( BTCI ) is one of those instruments that I would never ever touch. It is the complete opposite of a "value-oriented" underlying factor. And in fact, given how bitcoin ( IBIT ) swings around, I would argue that we could treat it as an implicitly leveraged bet. If we take a step back and look at how BTCI is structured, we will also notice several overlaps with QQQI and QQQH. It is a dynamically managed covered call ETF where the options are sold on an OTM basis. The underlying here is bitcoin, and the expense ratio is 0.99%, which is still quite reasonable. Speaking of the exposure formation , then as opposed to QQQI and QQQH, BTCI creates a synthetic long position in bitcoin. It is not a tangible and directly measurable drawback, but what we have to keep in mind is that in case something goes south in the bitcoin option markets, the consequences for BTCI might be drastic. But, obviously, for this risk to materialize, we would have to see 3+ standard deviation (tail) event. A more to the earth problem I have with BTCI is its gigantic volatility. Just take a look at how deeply BTCI's price has declined over the past ~12-month period: YCharts And as it is usually the case, plunging underlying directly translates into falling dividend distributions: Seeking Alpha All in all, I have three issues with BTCI: I know that this will sound old-fashioned and subjective, but bitcoin is an asset class that I don't understand and struggle to make well-educated projections as to how this asset will perform long-term. But it is very clear that bitcoin is not a value-oriented (stable) product and is instead loaded with return dynamics akin to a leveraged cyclical equity factor. BTCI's susceptibility to steep drawdowns goes completely against the notion of enjoying stable current income streams. The combination of high beta exposure and the covered call overlay program is a bad one. Since the underlying is so volatile, the chances of BTCI losing out on the recovery and thus significantly lagging bitcoin itself are very high. It would be hard to imagine how one could justify the inclusion of BTCI in a durable income-seeking portfolio. The only exception that I see is if an investor has a bullish view on bitcoin that he or she wants to express without diluting the portfolio with non-yielding exposures (BTCI could come in offering bitcoin-driven returns in a high-income generating fashion).