[Kwangsoo's Take] There Is No Such Thing as a 'Safe ETF' — The Covered Call Trap
Responding to reports that retail investors unable to withstand volatile markets are flocking to 'safe ETFs,' Lee Kwang-soo pushed back firmly. He stated that products using the word 'safe' are largely marketing that sells on anxiety, and that there is no such thing as a safe investment in the world. He pointed out that the so-called safe ETFs mentioned in the report were, in most cases, either U.S. index-tracking ETFs or weekly covered call products.
He detailed the problems with covered call structures in particular. A covered call sells away the upside from a stock's potential rise in exchange for a fee (premium), while the holder still bears the full downside if the stock falls. Meaningful returns only materialize when the index rises gently within a range; during a sharp rally the upside is capped, and during a sharp decline the risk is fully exposed. He compared it to buying real estate purely for the rental yield, only to have the property's price fall by more than the rental income received.
Lee argued that because the term 'safe' can mislead consumers, financial authorities should regulate it strictly. Even if risk disclosures exist in the terms and conditions, he said the structure makes it difficult for ordinary investors to read and judge them, and called for the Financial Supervisory Service to regulate such terminology.
He also noted that a major reason covered call products are sold so heavily is that they generate large fee income for distributors, stressing that investors need to understand that complex financial products, by nature, generate returns only under specific conditions.