Wall Street closes at a record for the first time since end of January
At this point, I think the Canadian ETF market has more or less exhausted every possible permutation of covered call strategies. Gone are the days when it was just about selling at-the-money monthly calls on broad indexes like the S&P 500 or Nasdaq.
Now you have covered call ETFs built on single stocks, 1.25x leveraged versions, zero days to expiry (0DTE) options, and expansions into sector-specific and international exposures.
If you are looking for an alternative source of yield, though, it is worth remembering that covered calls are not the only way to modify the risk and return profile of a portfolio. Another option is put selling.
For example, if you have enough capital to buy 100 shares of a stock, instead of going long and selling a call, you can sell what is known as a cash-secured put. In exchange for receiving an upfront premium, you take on the obligation to buy the stock at a predetermined price if it falls below the strike at expiry.
Done correctly, this can be a way to get paid to wait for a more attractive entry point on a stock you would be willing to own anyway. In ETF form, this strategy has not taken off to the same extent as covered calls, but there are still a few options worth highlighting.
Today, we are going to look at two of them. One is an older offering from BMO Global Asset Management, and the other is a newer entrant from Moat Financial in partnership with LongPoint ETFs.
1. BMO Premium Yield ETF (ZPAY)
ZPAY has been around for just over half a decade, having debuted in January 2020. It is an actively managed strategy focused on large-cap U.S. equities, but it does not take the typical “buy and hold” approach. Instead, the strategy operates in two parts.
First, eligible securities are screened using BMO’s rules-based methodology, which evaluates companies based on quality, yield, and liquidity. As of now, the underlying exposures tend to resemble the broader U.S. market, with overweight in technology, communication services, financials, and healthcare.
But rather than immediately buying those stocks, ZPAY holds the majority of its portfolio in cash collateral and uses that cash to write out-of-the-money put options.
An out-of-the-money put option is a contract where the strike price is below the current market price of the stock. By selling this option, ZPAY collects a premium upfront. In exchange, it takes on the obligation to buy the stock at the strike price if the market price falls below that level by expiry.
If the stock stays above the strike price, the option expires worthless and ZPAY keeps the premium as income. If the stock falls below the strike, the fund is assigned the shares at that lower price. In effect, it is getting paid to wait for a potentially more attractive entry point.
Once shares are assigned and the fund owns the stock, the strategy shifts to the second phase. ZPAY will then write out-of-the-money covered call options on those holdings to generate additional income and set a potential exit point.
If this sounds familiar, it should. What ZPAY is effectively doing is a variation of the popular “wheel” strategy, just executed on your behalf within an ETF structure. Investors get exposure to that process without having to manage options themselves.
For that, the ETF charges a 0.71% expense ratio and currently offers a distribution yield of 7.77%, paid out on a monthly basis.
2. Moat Active Premium Yield ETF (MOAT)
The underdog in the Canadian put-selling ETF space is MOAT. It launched in January 2026 and currently has just $3.67 million in assets under management.
Like ZPAY, this is an actively managed strategy. The key difference is how it selects stocks. MOAT focuses on companies with strong competitive moats.
If you have read Morningstar research, you will recognize the concept. In that framework, a moat refers to a sustainable competitive advantage that can endure for at least 20 years. Common sources include switching costs, network effects, intangible assets, cost advantages, and efficient scale.
MOAT takes a similar idea but applies a proprietary approach developed by Chris Thom, who brings over 15 years of experience and is a registered portfolio manager across multiple Canadian provinces.
Structurally, the strategy is also built in two parts. To enter positions, MOAT writes out-of-the-money, short-dated cash-secured put options on North American equities.
Unlike ZPAY, which is focused on U.S. stocks, MOAT expands its opportunity set to include Canadian names as well. Right now, the portfolio shows a number of puts written on Canadian companies such as Pet Valu, Bank of Montreal, TMX Group, Dollarama, Wheaton Precious Metals, and Cenovus Energy.
If those positions are assigned, MOAT then has the flexibility to write out-of-the-money, short-dated covered calls on the holdings. This generates additional income, although it does cap upside potential.
So far, MOAT’s approach has resulted in a higher yield than ZPAY, currently sitting at around 12.07% on an annualized basis. The full management expense ratio is not yet available until the ETF’s fiscal year-end, but the management fee is currently listed at 0.75%.
There is not much of a performance track record yet, and MOAT is an ETF underdog by every definition of the word. But for Canadian investors willing to look beyond the incumbents, I think MOAT is one alternative ETF to keep an eye on.
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