State Street SPDR S&P Aerospace & Defense ETF (XAR) Covered Calls

The SPDR S&P Aerospace & Defense ETF (XAR) is an exchange-traded fund that provides targeted exposure to the aerospace and defense industry. It tracks a modified equal-weighted index of U.S. companies involved in the manufacturing of aircraft, defense equipment, and related technologies. By using an equal-weight methodology, the fund offers a diversified approach that includes large-scale prime contractors alongside smaller and mid-sized innovators in the sector.

You can sell covered calls on State Street SPDR S&P Aerospace & Defense ETF to lower risk and earn monthly income. Born To Sell's covered call screener gives you customized search capabilities across all possible covered calls but here are a couple of examples for XAR (prices last updated Tue 1:10 PM ET):

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Core Business and Products

The SPDR S&P Aerospace & Defense ETF (XAR) is designed to track the performance of the S&P Aerospace & Defense Select Industry Index. Unlike many sector funds that weight holdings by market capitalization, XAR utilizes a modified equal-weight structure. This means the fund allocates capital more evenly across its holdings, which typically range between 35 and 45 companies. This approach reduces the dominance of the largest "prime" contractors and increases exposure to mid-cap and small-cap firms specializing in niche defense technologies and commercial aviation components.

The portfolio is composed entirely of companies classified within the industrials sector, specifically those engaged in the research, development, and manufacturing of civil and military aircraft, space vehicles, and defense electronics. Because the index is rebalanced quarterly, the fund systematically trims positions that have outperformed and reinvests in those that have lagged, effectively creating a built-in "buy low, sell high" mechanism. This makes XAR a popular vehicle for investors who want a "basket" approach to the sector rather than betting on a single manufacturer.

Competitive Landscape

XAR competes with several other aerospace and defense ETFs, each offering a different weighting philosophy and level of concentration. Its primary rivals include:

1. iShares U.S. Aerospace & Defense ETF (ITA): The largest and most liquid fund in the category. Unlike XAR, ITA is market-cap weighted, meaning it is heavily concentrated in massive firms like GE Aerospace and RTX Corporation.

2. Invesco Aerospace & Defense ETF (PPA): A rival that tracks the SPADE Defense Index. PPA includes a broader range of companies, including those in cybersecurity and government consulting, and is also market-cap weighted.

3. Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN): A leveraged alternative for tactical traders seeking triple daily exposure to the sector. It is often used by the same demographic of traders as XAR but with a much shorter-term focus.

4. Global X Defense Tech ETF (SHLD): A thematic competitor that focuses specifically on high-tech defense applications like artificial intelligence and robotics, often including international firms not found in XAR.

Strategic Outlook and Innovation

The strategic appeal of XAR is rooted in the long-term nature of defense spending cycles and the ongoing modernization of global military forces. As governments prioritize self-sufficiency and technological superiority, the companies within XAR are well-positioned to benefit from multi-year procurement contracts. The industry is currently seeing a significant shift toward autonomous systems, hypersonic missiles, and satellite-based communication networks, areas where the mid-cap innovators in XAR’s portfolio often lead.

Innovation in the aerospace segment is also driven by the commercial sector, where the push for fuel efficiency and decarbonization is leading to new engine designs and lightweight materials. For the income-focused investor, XAR is optionable and maintains sufficient liquidity for active trading. Because its equal-weight methodology often results in higher volatility than market-cap-weighted peers, the options premiums can be attractive. Many investors use covered call writing on XAR to capture income while maintaining diversified exposure to the essential aerospace and defense industry.

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