Home / Business and Economy / Japan's Covered Call Boom Reshapes Global Equity Volatility
Japan's Covered Call Boom Reshapes Global Equity Volatility
3 Aug
Summary
- Covered call strategies gaining popularity in Japan as interest rates remain low
- Automated volatility trades growing at large institutions and active ETFs
- Regulators considering allowing ETFs to pay dividends from options premiums
As of August 3rd, 2025, the market for listed covered call products in Japan is expected to expand to over ¥1 trillion ($6.8 billion) from the current ¥35 billion, according to industry experts. This growth is driven by banks and insurers seeking higher yields amidst the country's persistently low interest rate environment, even after the central bank ended its yearslong zero-rate policy.
Globally, call overwriting or covered call strategies have become one of the most popular volatility trades. At large institutions, these strategies are now fully automated and growing, while several active ETFs are also utilizing them. However, the trade tends to underperform during strong market rallies, as the sale of call options caps equity gains.
The Japanese bourse is also asking regulators to allow ETFs that sell options to pay dividends with the premiums they receive, further boosting returns for investors. This move could potentially dampen overall equity volatility and create temporary price resistance levels if a large open interest builds up at particular strike prices and maturities.
