Can You Write Covered Calls on ETFs in Canada?
Can You Write Covered Calls on ETFs in Canada? Pros and Cons
Many conservative investors ask: Can I write covered calls on ETFs? The short answer is yes — but not all ETFs are created equal when it comes to options trading. In this guide, we break down the pros and cons of using ETF options for income in a Canadian portfolio.
✅ Why Use ETFs for Covered Calls?
- Lower volatility: ETFs often move more gradually than single stocks — especially index-based ones.
- Diversification: You reduce company-specific risk by spreading exposure across sectors.
- Great for conservative accounts: Popular with RRSP and TFSA users seeking steady income.
⚠️ Downsides of Using ETFs
- Lower premiums: Because ETFs are less volatile, their option premiums (ROO %) are usually smaller.
- Liquidity issues: Many Canadian ETFs have very thin open interest and wide bid/ask spreads.
- Limited selection: Only a small subset of TSX-listed ETFs actually have options chains.
📊 Examples of Tradable Canadian ETFs
- XIU.TO – iShares S&P/TSX 60
- ZEB.TO – BMO Equal Weight Banks
- ZWB.TO – BMO Covered Call Banks ETF (already does it for you!)
- XEG.TO – iShares S&P/TSX Capped Energy
All of these have active options chains with decent open interest and can be filtered on Optrader.ca.
🧠 Pro Tip: Filter by Open Interest and Volume
On Optrader.ca, use the Open Interest and Volume sliders to find ETFs with active options. Set a minimum OI of 100+ to avoid illiquid trades.
✅ When Should You Use ETFs?
- You want safer trades with less individual stock risk
- You’re deploying a covered call strategy inside an RRSP or TFSA
- You’re okay with modest income in exchange for stability
⚠️ Always check liquidity before entering a trade. Some ETFs may look appealing but have nearly dead options chains.
