South Korean investors face risks from covered call ETFs and leverage trading

South Korean investors are facing significant risks due to the structural characteristics of covered call ETFs and aggressive leverage trading during market volatility. Covered call ETFs, which have seen domestic assets grow to 28 trillion won, offer high monthly dividends by selling call options. However, this structure limits upside potential during market rallies while failing to fully protect against downside losses, potentially leading to permanent capital erosion.

Recent market fluctuations in the KOSPI have highlighted a divergence in investor strategies. While individual investors heavily purchased leverage ETFs to bet on a market rebound, institutional investors focused on inverse ETFs to profit from falling prices. This divergence, coupled with a surge in credit-based margin trading—reaching a three-month high of approximately 34.3 trillion won—increases the risk of forced liquidations through margin calls if market declines continue.