Investment and Options Strategist
Summary: Many investors hold IWDA as a long-term core position - but few realise it can also generate additional income. This article explains how IWDA mini-options allow investors to write covered calls on smaller ETF positions, including how the potential yield, risks, and trade-offs work in practice.
The iShares Core MSCI World UCITS ETF (IWDA) is one of the most widely used building blocks in long‑term portfolios. Many investors buy the ETF regularly and hold it for years as a simple way to gain exposure to global equity markets.
For most of that time, the strategy has been straightforward: buy the ETF, hold it, and allow global equity markets to compound over time.
However, a recent development on Euronext Amsterdam introduces a new possibility for some investors. Mini‑options on IWDA now allow option strategies to be applied in much smaller increments than before. In practical terms, this means investors can potentially generate option premium from part of an existing IWDA position without needing a large allocation of ETF units.
For long‑term investors who are comfortable with options, this may offer an additional way to improve the yield of a portfolio holding. At the same time, it is important to understand the trade‑offs involved. The strategy discussed in this article is educational in nature and examples are illustrative only. Options involve risk and require careful consideration before use.
The iShares Core MSCI World UCITS ETF tracks the MSCI World Index, which represents large and mid‑capitalisation companies across developed markets. The index includes companies from North America, Europe and Asia‑Pacific, providing broad diversification through a single instrument.
Because of this diversification, many investors treat IWDA as a long‑term portfolio foundation. Contributions are often made gradually through regular investing plans, and the ETF is typically held for many years.
In such portfolios, the objective is usually straightforward: participate in global economic growth over time. Investors may focus less on short‑term market fluctuations and more on long‑term compounding.
Yet even within long‑term portfolios, some investors eventually ask a practical question. If an ETF position is intended to be held for years, could it also generate additional income along the way?
Listed options provide one possible approach.
Options on ETFs are not new. Covered call strategies have been used for decades by investors seeking to generate income from existing holdings.
Traditionally, however, listed options represent 100 units of the underlying asset. This means that a standard option contract on IWDA corresponds to 100 ETF units.
For many investors, that contract size has been a practical barrier. Someone holding 30 or 40 ETF units, for example, simply could not use the strategy because they did not own enough units to cover the contract.
Mini‑options change that dynamic.
On Euronext Amsterdam, IWDA options are now also available with a smaller contract size. Each mini‑option represents 10 ETF units rather than the traditional 100.
The strategy itself has not changed. What has changed is the scale at which it can be applied.
This smaller contract size allows investors to manage exposure in much finer increments, which may make the strategy more practical for a wider range of portfolios.
Consider a long‑term investor who has gradually accumulated 40 units of IWDA through regular investments.
Under the traditional option structure, this investor would not have been able to sell a covered call because the minimum contract size was 100 units.
With mini‑options, the same investor could potentially sell a call option on 10 units, 20 units, 30 units, or the entire 40‑unit position. In other words, the strategy can be tested on a small portion of the holding rather than the entire allocation.
At the other end of the spectrum, larger investors may also benefit from the flexibility.
Imagine a portfolio holding 1,500 units of IWDA. Instead of covering the position in large blocks of 100 units, mini‑options allow the investor to adjust exposure more precisely. Strike prices can be staggered, expiries can be spread across different dates, and only part of the position can be covered at any given time.
For both smaller and larger investors, the change in contract size simply allows more flexibility in how the strategy is applied.
A covered call is one of the simplest options strategies, although it still requires an understanding of how options work.
In a covered call, an investor owns the underlying asset and sells a call option on that asset. The buyer of the option receives the right to purchase the asset at a predetermined price, known as the strike price, before the option expires.
In exchange for granting this right, the seller receives an option premium.
Because the investor already owns the ETF units, the position is described as "covered". If the option is exercised, the investor can deliver the ETF units they already hold.
The premium received from selling the option is the income component of the strategy.
Important note: The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.
Assume the following simplified market conditions:
IWDA price: EUR 112.60
Call strike price: EUR 115
Expiry: roughly one month
Option premium: EUR 1.35 per ETF unit
One mini‑option contract represents 10 ETF units.
Premium received:
EUR 1.35 × 10 = EUR 13.50
Value of 10 IWDA units:
EUR 112.60 × 10 = EUR 1,126
Premium relative to the ETF position:
EUR 13.50 / EUR 1,126 ≈ 1.2% for roughly one month (illustrative and can be more or less depending on market conditions)
This yield illustrates why some investors consider covered calls on long‑term holdings.
Maximum profit occurs if IWDA finishes at or above the strike price (EUR 115) at expiry.
Profit components:
Capital gain: EUR 115 − EUR 112.60 = EUR 2.40 per unit
Option premium: EUR 1.35 per unit
Total maximum profit per unit:
EUR 2.40 + EUR 1.35 = EUR 3.75 per unit
For the 10‑unit position:
EUR 3.75 × 10 = EUR 37.50 maximum profit
Relative to the EUR 1,126 position value, this equals roughly:
3.3% maximum return for the one‑month example.
The downside risk remains largely the same as owning the ETF.
If IWDA were to fall to zero (a theoretical worst case, which is unlikely to happen with a world-etf), the loss would be the value of the ETF minus the premium received.
Loss per unit:
EUR 112.60 − EUR 1.35 = EUR 111.25
For the 10‑unit position:
EUR 111.25 × 10 = EUR 1,112.50 maximum loss.
In other words, the option premium provides only a small buffer against declines.
If IWDA remains below EUR 115 until expiry, the option may expire worthless. In that case, the investor keeps the premium and continues to hold the ETF units.
Some investors then repeat the strategy by selling a new call option with a later expiry.
If IWDA rises above EUR 115, the option holder may exercise the option. This means the investor may be required to sell the covered ETF units at EUR 115.
In that scenario, the investor keeps the premium but does not benefit from price gains above the strike price on the covered portion of the position.
If IWDA declines instead, the premium received provides a small buffer against losses. However, the investor still bears the downside risk of owning the ETF.
This is an important point: selling covered calls generates income, but it does not protect against declines in the underlying asset.
The logic of the strategy ultimately revolves around a simple exchange.
The investor receives option premium today, but in return accepts that the covered ETF units could be sold at the strike price.
If the ETF rises strongly above that level, the investor gives up some potential upside. If the ETF declines, the premium only partially offsets the loss.
For this reason, some investors view covered calls as a way to enhance income from long‑term holdings rather than as a strategy designed to outperform rising markets.
Options are complex financial instruments and require careful evaluation before use.
Investors considering covered calls should think about several practical factors, including the possibility of early assignment, the liquidity of the option market, bid–ask spreads, trading costs and the tax treatment of option premiums.
Perhaps most importantly, an investor should be comfortable with the idea of selling the ETF units at the chosen strike price if the option is exercised.
If selling the ETF at that price would be undesirable, the strategy may not be appropriate.
Mini‑options on IWDA do not introduce a new strategy. Covered calls have been used for decades by investors seeking to generate income from existing holdings.
What has changed is the contract size.
By allowing the strategy to be applied in 10‑unit increments, mini‑options make covered calls accessible to a broader group of IWDA investors. For some, this may offer an additional way to manage the yield of a long‑term ETF position while maintaining exposure to global equity markets.
As always, understanding both the mechanics and the trade‑offs is essential before using options in a portfolio.
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