Covered call ETFs often lag during strong market rallies because of how traditional covered call strategies are structured:
Upside is capped by sold calls: In a classic covered-call ETF, the fund owns equities and sells call options (usually monthly). If the market rises above the call strike, gains above that strike are forgone because the calls limit further upside participation. This structural cap is the primary reason returns trail the broader market during sustained rallies.
Premium income vs. price appreciation: While selling calls generates income through premiums, in a strong upward market the premium often doesn’t compensate for missed price appreciation on the underlying stocks. Even if the ETF pays high distributions, its total return can lag the underlying index’s capital gains.

Daily reset covered call strategies: Some newer ETFs (like ProShares’ daily covered call products) use daily option resets to reset the cap more frequently, allowing better capture of rising markets compared with traditional monthly write strategies.