ROCQ & ROCY | Next Gen JP Morgan Funds (JEPI/JEPQ Alts)

Hi dreamers, today I want to cover ROCQ and ROCY, JP Morgan's newest premium options ETFs. And in a lot of ways, it's the upgrade from JEPQ and JEPI, which are at this point the OG options ETFs. And to do that, we're also going to compare and contrast the complicated array of cover call ETFs, collared ETFs, and option spread ETFs. So, are you ready, my dreamers? Today, we're going to solve the riddle of ROCQ and ROCY, and how they fit into the landscape of the more complex options ETFs. All right, so let's start with the basics. JP Morgan launched these two funds this year in March. And as they describe here, while they share a DNA with their blockbuster predecessors of JEPQ and JEPI, these funds introduce a strategic twist, because both combine actively selected equities with a disciplined options overlay. But these new funds generate income by selling call spreads, not just covered calls. And because they use a different mechanism, they target tax-deferred income via return of capital, which is a feature designed for the tax-sensitive investor. It goes on to say that one critical difference in these funds is that the managers are moving away from the set-it-and-forget-it mechanical overlays toward what they're calling intentional design. And so, this approach has essentially three prongs: a defensive alpha, pairing bottom-up stock selection with derivative overlays, refined payoffs using index options [music] and structured spreads to fine-tune the risk-reward profile, and precision tools moving beyond the one-size-fits-all to offer distinct buckets for core income, growth income, and hedged exposure. So, as we see here with ROCQ, the expenses are 0.35 and it's focused on the Nasdaq 100 index, generating yield through a combination of selling call option spreads, and delivers monthly distributions from option premiums and stock dividends. The yield on ROCQ can be seen down here of 13.54% and as we go into portfolio, you can see here the top 10 holdings of Nvidia, Apple Micron Google Microsoft Amazon, AMD, Lam Research, Walmart, and Intel. And in the fact sheet, you can see that information technology is at about 60% and in comparison, ROCY also has a 0.35% expense ratio, has the same mechanism of selling option spreads, also delivers monthly distributions from those premiums and stock dividends. And its yield is about 12%. But looking at its fact sheet, the information tech percentage is lower at about 38% >> [music] >> and ROCY's top 10 holdings are Nvidia, Apple Google Microsoft Amazon MU AVGO, Meta, Wells Fargo, and Seagate. So, how does ROCQ and ROCY generate those option premiums? Specifically, how it compares to JEPQ and JEPI and then the rest of the landscape. And then we'll get into how everyone has performed. So, for one, ROCQ and ROCY use flex options, not ELNs or equity-linked notes, which I've talked about extensively in previous JEPQ and JEPI videos, which I'll highlight here. But essentially, the older JEPQ funds famously used equity-linked notes to implement their covered call strategies. But ELNs generate ordinary income, making them highly tax inefficient in a taxable account. These new JP Morgan funds, ROCQ and ROCY, avoid yield lens and instead write standard option spreads directly against their equity portfolios. This structural shift allows them to distribute income characterized as return of capital, providing a massive tax advantage for investors, especially in a taxable account. And to talk about this further, these two funds are specifically designed to be tax-efficient siblings to JEPI and JEPQ, and they even share the same fund manager, targeting similar equity benchmarks. And so, you can see in this graph here, the primary indices are the S&P 500 for JEPI and ROCY, and the Nasdaq 100 for JEPQ and ROCQ. You can see the option strategy for JEPI and JEPQ is out-of-the-money covered calls, whereas the option strategy for ROCY and ROCQ are call spreads, with the result being ordinary income for JEPI and JEPQ versus return of capital for ROCY and ROCQ. And they all have the same expense ratio. So, let's cover a couple of other topics before we go into the performance of how these all stack up. So, some of the more complex options ETFs employ both collared and spread options. So, I wanted to cover the difference between the two. Essentially, a collared ETF provides full protection on the downside and generally provides a hard floor against losses. They combine a long equity position with a protective put and a covered call to offset the cost, whereas a put spread ETF offers a buffer rather than a hard floor to protect against moderate losses, but would remain exposed to an extreme black swan, let's say, market crash. If we look at this in a graph, you can see the collar strategy on the left, where you own the stock, buy a put for protection, and then sell a call for income. Essentially caps the upside at a certain call strike, yet sets a floor, and [music] limits the downside, which is best for investors who want downside protection and are willing to give up some of the upside in order to get it. Versus a put spread strategy, for example, something like OVL, where you sell a put to generate income, buy a lower strike put for protection, which provides you unlimited upside potential, but also limits your downside protection. And that's best for investors who want income and upside potential with some downside protection. So, when you're doing complex option strategies, some of the key questions are, are you positive or negative on the markets? And do you expect volatility to rise or fall? And guys, at the end of the day, I personally try to keep my option strategies pretty simple, because the more complex you go, the stronger conviction you should probably have about the direction and the macro environment in which you're trading. And so, to back out of all of that, let's take a look at some of the professionally managed options ETFs that are using all of their advanced tools and decades of experience to manage all of this for you. And there's about a dozen here that I want to compare and contrast for you and how they've performed over the last year. These first two are primarily put spread income focused funds, OVL and WTPI, where they primarily harvest option premiums without using a classic collar. Their goal is to preserve much of the upside while generating income. And so, they have some downside protection, but not a lot in a down market. ACIO is Aptus Collared Investment Opportunity ETF, which also has a high focus on income. The true collared funds are XCLR and QCLR with HEQT employing a hedging overlay that resembles a collar, but it is more flexible. As you can see in the comparison, these three funds have a more steady and stable total return because they give up a good part of the upside in an up market in order to have that downside floor protection. And so in a giant up market like we've had in this year, they will underperform the other types, but then might outperform in a down market [music] due to the protection of those collared strategies. So they own stocks, sell calls, and buy protective puts explicitly capping the upside while limiting the downside. Then we move on to ROCY and ROCQ, which you can see just launched in March. But essentially, their strategy is to use a call spread strategy. They sell out of the money call options to generate premium and use a portion of that income to buy further out of the money calls for upside participation. For these funds, they're selling calls that are roughly 5 to 10% out of the money, allowing them to capture a larger portion of the market upside during rallies compared to the traditional covered call ETFs. [music] And in a moment, I'll turn this to 1 month so we can see how they've all performed against one another. For comparison, I wanted to throw in the traditional covered call ETFs with a simple covered call on top. And so here we see the total return for QQQU at 29%, SPY at 21%, the very safe conservative DIVO at S&P 500 at 25%, and the winner of all of these has been GPIQ, which is the NASDAQ focused Goldman Sachs product with a simple covered call at almost 37% and wrapping up the comparison, I've got JEPI over the last year at a total return of 9%. While JEPQ has had a total return of 29%. So, let's see how all of these compared and who the winner was over the last month given that ROCY and ROCQ have just recently launched. Of course, we've had a significant up market. And so, the winner of the last 30 days is GPIQ at 4.62%. We've got JEPQ at 3.69%, JEPI at 0.65% and our relative newcomers of ROCQ >> [music] >> and ROCY doing pretty well at 4.39% and 2% respectively. So, how would I think about feathering [music] in these brand new JP Morgan funds? For me, if I'm using a taxable account, I might think about fully replacing JEPI and JEPQ with these new funds because of the tax advantages. And another reason to consider these two is because they've actually outperformed the other collared and option spread funds just in the short time they've been out. And if you're not looking for the full downside protection of things like [music] XCLR, QCLR, or HEQT, ROCY and ROCQ might be a good middle of the road option to both participate in the upside and have some downside protection as these are not set it and forget it ETFs, but actively managed. And so, another case for these funds is mentioned in this article. Perhaps you would include them in your mix as a rotational approach. If you deploy QQQ in the bull market and ROCQ in the case of a flat or defensive environment for both income and risk mitigation. So I hope that was helpful for you as you attempt to navigate the more complex options ETFs out there of covered call, collared, and option spreads ETFs. Let me know what you think in the comments. Well, that's it for today. I hope you enjoyed this dividend income update. And if you want a richer real-time experience with me, you can always follow me on Instagram or X. 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