Covered Call ETFs for BRIC Markets

Abstract

We explore the feasibility of creating a covered call ETF within BRIC countries to serve the growing global demand for emerging market investments having attractive risk and return characteristics Our findings suggest that currently among BRIC nations India alone has stock and options markets that make an index covered call ETF practically achievable. Such an ETF on India's NIFTY index appear to provide the valuable covered call benefits of yield enhancement over cash returns with volatility below that of the NIFTY index, diversification benefits due to a lower correlation with the NIFTY and a degree of protection against falling markets. Using closing price and intraday price data on the NIFTY and NIFTY options we verify that covered call returns in India are attractive and compatible with findings of past covered call studies. We conclude a covered call ETF on the NIFTY could be created, listed and quoted on local exchanges in India, Europe, the US or elsewhere.