What is the main difference between ATM and OTM covered calls?

ATM typically offers higher premium with tighter upside limits, while OTM offers lower premium but retains more upside participation.

When is an ATM covered call approach more suitable?

It can fit investors prioritizing near-term income over strong upside participation, especially in range-bound market expectations.

Who benefits more from an OTM covered call approach?

OTM is often better for investors who still want income but also want partial participation in underlying price appreciation.

Strike Selection Changes Everything: ATM vs OTM

Covered call ETFs are not all the same. The key difference is whether calls are sold at current price (ATM) or above current price (OTM).

What is Covered Call ETF?ATM vs OTM Simulated ETF Guides

ATM vs OTM

Assume you own an apartment worth KRW 500M.

ATM (At-the-Money)

Situation: Promise to sell in 6 months at KRW 500M (today’s market price)
Result: More attractive to buyers, so premium tends to be higher (e.g., KRW 30M)
Feature: Higher immediate income, but most upside above KRW 500M is given up if prices rally hard

OTM (Out-of-the-Money)

Situation: Promise to sell in 6 months at KRW 525M (+5% above current price)
Result: Less attractive to buyers, so premium is lower (e.g., KRW 15M)
Feature: Lower immediate income than ATM, but partial upside participation is retained up to the target strike

ATM vs OTM at a Glance

Category	ATM	OTM
Strike Level	Same as current price	Higher than current price (e.g., +5%)
Premium / Distribution	Higher (often ~10-15% range)	Moderate (often ~7-10% range)
Upside Participation	Very limited	Partial participation up to strike
Best Fit	Maximizing near-term cash flow	Balancing income and price appreciation
Typical Examples	QYLD (Nasdaq 100)	JEPQ, target-premium covered call ETFs

Practical Tip

Products with labels like '+7% / +10% target premium' are often OTM-oriented. They target a controlled income level while leaving some upside open to reduce long-run NAV drag.