JEPQ vs. QQQ: Finding Signals in the Noise

As a first-time investor, researching on what financial instruments to invest in, I narrowed my options to two technology ETFs, JEPQ and QQQ. QQQ tracks the NASDAQ 100 index, meaning its fluctuations are tied to that of the NASDAQ 100. JEPQ tracks some of the top stocks in the NASDAQ 100, and sells covered calls to generate monthly dividends for investors. On paper, it seems like JEPQ is for more conservative investors, capping the potential gains with the calls, but also insuring against sharp falls. QQQ, on the other hand, is subject to the whims of the market, with the potential for large gains, but also the risk of steep falls. I wanted to leverage my expertise with data, and see if there were any patterns or trends that I could spot, that would give me a better chance of having success with my investments. For this, I used the daily price data for JEPQ and QQQ from May 4^th, 2022, to December 25^th, 2025.

If I invested on Day 1, what would be my total return on Day x?

To answer this question, I took the cumulative returns of JEPQ and QQQ. Looking at the big picture, we can see that despite JEPQ holding high-performance stocks and paying out dividends, QQQ shows a greater increase in returns over a longer-term period.

This is because selling options to generate short term income caps the upside of JEPQ. In a bull market, QQQ captures 100% of the increase, allowing its growth to compound. JEPQ hits its call strike on those specific days, meaning that despite creating immediate income by selling the shares through calls, the long-term growth of the fund is hindered by the necessity of fulfilling the calls. I also found that both funds have a strong negative correlation with volatility (VXN) spikes. When market risk increases, both QQQ and JEPQ take a hit. The presence of a covered call does not allow JEPQ to completely escape the loss-making trend. However, JEPQ does protect against the high losses that QQQ can face. When calculating the capture ratios, I found that JEPQ captures about 66.8% of QQQ’s upside on good days, and 69.1% of QQQ's downside on bad days. This shows that while JEPQ may not give the same upside that QQQ does, it also does not completely sink to the lows that QQQ can.

Now that I found how each fund performed over a long-term period, I wanted to figure out when to invest.

So, I decided to try and identify some more granular trends. I used the QQQ data, because it is a superset for JEPQ, and as such, can also serve as a proxy for the trends observed in the JEPQ fund. I applied a 63-day centered moving average (roughly one trading quarter) to smooth out the daily noise. By finding the local maxima and minima of the smoothed curve, I divided the timeline into distinct Market Expansions and Market Contractions.

Once the phases were mapped, I calculated the exact slope (the rate of change) for both QQQ and JEPQ between those turning points. From this, I found that during a Market Expansion, QQQ accelerates aggressively. Its slope is incredibly steep. JEPQ steadily climbs alongside it, but at a visibly flatter trajectory. During a Market Contraction, QQQ's slope plummets sharply. JEPQ also declines, but its slope is noticeably less severe, which validates the previous conclusions that we found.

Overall, QQQ is best for long term investors. Because of its inexorable rise, investing in QQQ will eventually lead to returns, despite the fluctuations observed in the short term. JEPQ is more suitable for conservative investors. The potential gains are capped, and the losses are ameliorated by the dividend from the call option. The monthly dividends also ensure steady cash flow.
To build upon this research, given the observed correlation between the prices and the VXN level, I would like to try to create a trading model to predict the state of the VXN and whether to enter or exit the market based on the guidance of the model.