The Nasdaq BuyWrite ETF: High Yield, Hedged Risk, and Why FTQI is a Volatility Winner

In a market where income investors are starved for yield and volatility remains a constant, the First Trust Nasdaq BuyWrite Income ETF (FTQI) offers a compelling solution. With its 11.7% trailing distribution yield and a strategy that pairs equity exposure with covered call options, FTQI is carving out a unique niche. But is this high yield sustainable? And how does it stack up against traditional income plays like the S&P 500? Let’s dissect the facts.

The FTQI Playbook: Equity Exposure + Covered Calls = Income Power

FTQI’s strategy is straightforward yet potent. The fund holds a portfolio of Nasdaq-100-linked equities and sells one-month at-the-money or out-of-the-money call options on the index. This “covered call” approach generates premiums, which are distributed monthly to shareholders. The result? A steady income stream with embedded downside protection: the underlying equities cushion losses if the market drops, while the call options cap upside potential in rallies.

The recent dividend projection underscores this model’s efficacy. As of May 2025, FTQI’s next distribution is slated for $0.188, with an ex-dividend window of June 23–27, 2025. This follows a three-year track record of 7 dividend increases versus 6 decreases, reflecting the strategy’s adaptability to market cycles.

Why 11.7% Yield Matters in Today’s Market

The 12.8% trailing 12-month yield (as of May 2025) isn’t a typo. While the S&P 500’s dividend yield hovers around 1.5%, FTQI’s premium strategy turns volatility into an income generator. Consider this: in a sideways or down market, the call premiums keep flowing, while the equity holdings provide a buffer against losses.

But skeptics will ask: Can this yield last? The answer lies in the fund’s structure. Unlike REITs or high-yield bonds, FTQI’s income isn’t tied to debt obligations or property leases. Instead, it’s derived from premiums on liquid, U.S. tech stocks, which dominate the Nasdaq-100. As of March 2025, tech stocks represented a significant portion of the fund’s holdings, aligning it with one of the most resilient sectors in recent years.

Risk-Adjusted Returns: Outperforming in Down Markets

While FTQI isn’t immune to market swings, its hedged approach has historically softened losses. In the 2022 downturn, for instance, the Nasdaq-100 fell 28%, but FTQI’s monthly distributions continued—albeit at reduced levels—because the call premiums provided a cushion. Over three years, the fund’s volatility (standard deviation) has averaged 14%, compared to the Nasdaq-100’s 22%.

The S&P 500 Can’t Compete on Yield—But FTQI Isn’t a Growth ETF

FTQI isn’t about beating the S&P 500’s returns. Its goal is to deliver income with less risk. Year-to-date in 2025, the S&P 500 has returned 7.2%, while FTQI’s returns are 4.3%—but that 4.3% includes $0.188 in distributions, providing immediate cash flow. For retirees or income-focused investors, this trade-off—lower headline returns for higher yield—is a no-brainer.

Risks and Considerations

No strategy is without flaws. FTQI’s capped upside means it will lag in strong bull markets. In 2021, when the Nasdaq-100 surged 25%, FTQI’s returns were 18%—a 7% gap. Additionally, the fund’s 0.75% expense ratio is moderate, but the tax complexity of its distributions (which may include capital gains or returns of capital) requires careful tracking.

Why Act Now?

With the Fed signaling caution on rate hikes and tech stocks rebounding, FTQI’s mix of Nasdaq-100 exposure and option income feels timed to perfection. The June ex-dividend date offers a clear entry point to lock in the $0.188 payout. Meanwhile, the fund’s 12.8% yield—more than eight times the 10-year Treasury rate—makes it a standout in a low-yield world.

Final Take: Income Investors, Take Note

FTQI isn’t just a dividend ETF; it’s a volatility hedge masquerading as an income play. For those willing to trade some upside for cash flow and downside protection, this fund delivers on its promise. The ex-date in June 2025 isn’t just a date on a calendar—it’s an opportunity to secure double-digit yield in an uncertain market.

In a world where income is scarce and volatility is king, FTQI’s blend of Nasdaq-100 equity exposure and covered call premiums isn’t just an investment—it’s a strategic necessity. The question isn’t whether to act, but whether to act fast enough.