Using Covered Calls As An Income Strategy

Using Covered Calls As An Income Strategy

Table of Contents

? Finding Income in the Current Macro Environment ? Explaining Covered Calls ? Option Writing ? Covered Call Mechanics ? Covered Call Market Scenarios ? Volatility ? Covered Calls on Nasdaq 100

? Global X Management Company LLC Confidential | All numbers are approximate

2 6 7 11 14 17 18

1

Sluggish Growth

OECD's Economic Outlook

0% -3% -6% -9% -12% -15%

World GDP Growth -6.0%

o The world's economy is expected to slow down further if the Covid19 situation persists.

o Impact of slowdown to affect corporate earnings, lowering equity yields

o Industrial commodities expected to see lower demand over that time period

o Central banks globally expected to continue easing, potentially extending the low to negative yield environment

Source: The Organisation for Economic Co-operation and Development ? June 2020. The outlook considers single hit scenario where in no another COVID-19 wave occurs before end of 2020.

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2

2

Central Banks

Central banks around the world have maintained easing monetary conditions, pumping money into the economy, often resulting in lower interest rates

CENTRAL BANK RATES: Trailing 2 years of Policy Rates (%) Source: Federal Reserve Bank of St. Louis, Bank of England, European Central Bank, and Bank of Japan as of 05/31/2020

2.4

1.8

0.1

1.2

0.05

0.6

0.0

-0.05

-0.6

-0.50

-1.2

Apr-18 May-18 Jun-18

Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19

Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20

Central Banks US Federal Reserve ECB Bank of England

Bank of Japan China

United States

ECB

United Kingdom

Japan

Trajectory

Fed indicated it will continue to maintain near zero rates through 2022.

Expected to further ease in monetary policy to support crisis struck economy.

BoE slashed its rates to record low of 0.1% in March and launched 200 Billion Pound asset purchase program.

Expected to further ease monetary policy in coming time.

Easing policies in place and expected to continue easing.

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Confidential | All numbers are approximate

Negative Interest Rate Environment

TREASURY REAL YIELD CURVE RATES: 1 YEAR (%) Source: Federal Reserve Bank as of 06/26/2020

1.2

0.8

0.4

0.0

-0.4

5 YR

7 YR

10 YR

20 YR

30 YR

-0.8

Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20

TOTAL NEGATIVE YIELD DEBT GLOBALLY IN TRILLIONS1 ($) Source: Bloomberg as of 06/26/2020

15 12

9 6 3 0

Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20

(1) Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index : It measures the stock of debt with yields below zero issued by governments, companies and mortgage providers around the world which are members of the Bloomberg Barclays Global Aggregate Bond Index

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Confidential | All numbers are approximate

Interest Rates

YIELDS BY ASSET CLASS2 (%) Source: Federal Reserve Bank of St. Louis, Bank of England, European Central Bank, and Bank of Japan as of 06/26/2020

20

15.39

15

10 5

6.77

5.36

4.23

3.76

2.17

0

MLPs

High Yield Bonds

Emerging Market Bonds

Yields (%)

REITS

Fixed Rate Preferreds

Corporate Bonds

10 Year Treasuries

2.01 0.64

US Equities

S&P 500 SECTOR YIELD (%) Source: Bloomberg as of 06/26/2020

8

6.27

6

4

3.67

3.53

2

3.01

2.83

2.44

2.35

1.78

1.31

1.26

1.... 2.01

0

Energy

Utilities Real Estate Consumer Financials Industrials Materials Health Care Communications Information Consumer

Staples

Services Technology Discretionary

Current Yield

S&P 500 Yield

(2) Asset class representations are as follows, MLPs, S&P MLP Index; High Yield Bonds, Bloomberg Barclays US Corporate High Yield Bond Index; Emerging Market (EM) Bonds, J.P. Morgan EMBI Global Core Index; Corporate Bonds, Bloomberg Barclays US Corporate Bond Index; REITs, FTSE NAREIT All Equity REITS Index; Equities, S&P 500 Index; and Preferreds, BofA Merrill Lynch Fixed Rate Preferred Securities Index.

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Confidential | All numbers are approximate

Investor Options

What can an income-oriented investor potentially do in low interest rate environments in an effort to increase their portfolio's yield?

A Take more duration or credit risk in the bond markets, like high yield and EM bonds

B Look for alternative sources of income, such as high dividend stocks, MLP, REITS or Preferreds.

C Consider income-generating strategies, such as covered-call writing

Writing a covered call means an investor owns an underlying asset, like a stock or basket of stocks, and sells a call option on the asset(s). The strategy trades off upside participation for current income.

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Confidential | All numbers are approximate

Understanding Options

What are Options?

Options are financial instruments which derive their value from underlying asset such as stocks. They give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date.

OCuarllHOisptoiornys

? Call Options provide a right to purchase an asset at

a determined price in a specified time.

? Long Call: Bullish on underlying.

OPurt HOipsttiornys

? Put Options allows holder to sell an asset at certain

price within a specific period of time.

? Long Put: Bearish on underlying.

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Confidential | All numbers are approximate

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