Fidelity Equity Premium Yield ETF

Covered call strategies are a time tested

solution that combines a long

equity allocation

with short exposure to a call

option. The strategy has

historically appealed to investors who

seek to maintain some portion

of equity upside potential,

they wish to generate an

elevated level of cash shield,

and they wish to dampen

overall portfolio volatility.

In the Fidelity Equity Premium Yield ETF,

we incorporate an index-based covered

call strategy

and we use this strategy to produce

an elevated level of cash

flow and also a dampened

volatility experience.

An index-based

covered call strategy significantly

reduces the operational and

implementation complexity relative

to a single stock option

implementation.

And I think that there's several important considerations

particularly from an operational and

a risk management perspective.

Speaking specifically to the operational

perspective first.

An index-based covered call strategy

will dramatically reduce the number

of option holdings we have in the portfolio.

For example, let's take

a look and and pretend that we're working with

an equity portfolio that has 200 individual

equity holdings.

A single stock covered call strategy would

require us to sell

approximately 200 single

stock option positions. So we would effectively

double the number of securities

held in the portfolio.

So when you think of that, compared to an

index-based covered call strategy,

where we are required to sell as few

as one option to cover

the entire equity portfolio, there

are tremendous advantages

in the number of positions

that we have to monitor. There

are a significant

reduction in the trading complexity,

in collateral management and certainly reporting.

So for these reasons,

you know, from an operational standpoint,

we have a strong bias towards index

based options for cover call strategies.

Now let's talk about risk management. So

job number one in portfolio management

is you are a risk manager every minute

of every day, and so we

think an awful lot about

liquidity, transparency

and our ability to trade, not in the

best markets, not in a normal market environment

but in the absolute worst market environments.

And so

with that background in place, the

Fidelity Equity Premium Yield ETF exclusively

uses listed S&P 500

index call options as part of our call selling strategy.

We favor these securities because an interesting

statistic is that, roughly

$800 billion of

average daily volume, in notional terms,

trade every single day in this contract. So it's

very, very liquid even in

the most challenging markets like we saw in 2008,

2018, 2020 et cetera.

So

liquidity is paramount to the day-

to-day activities and the portfolio management

side of these things, but it's absolutely

vital in the periods where we need it most.

So we think that this is a differentiator with

our product. Managing risk is a key

attribute to our portfolio management

process in the Fidelity Equity Premium Yield ETF

and our decision

to incorporate index-based

covered call options underscores

our commitment to the operational efficiency

and our focus on risk management within

the fund.