This website is meant to be a brief introduction to one of the increasingly popular ETF’s: Covered Call ETF’s. In both Canada and the US, Covered Call ETF’s have been launched in the past few months and have been gaining traction as a great product to tailor specific needs, mostly for retail and small instituational clients that would find it too expensive to replicate a similar strategy on their own. Some clients have financial advisers replicating a similar strategy but in almost all cases it becomes a more expensive proposition. Here are some of the subjects discussed on this website:
What is a covered call ETF?
You probably already know what a standard ETF is. Basically, it’s a fund that owns specific assets. SPY is by far the largest ETF, it replicates the return of the S&P500 Index by buying the 500 stocks that are part of the index. To make this example easier to understand, let’s talk about doing a covered call on a specific stock, Microsoft Corp (MSFT).
If you own 100 shares of Microsoft, you are receiving a dividend yield of around 2.51%. You could increase the income related to your position by selling a call. For example, if you sold 1 option (which covers 100 stocks) for a higher strike and received $0.15 per share, that would increase your dividend yield right? The downside? If the stock’s price increases quickly, you might have to sell your stock at the lower stock price.
In conclusion, by selling the call you:
-Receive additional income
-Have more limited upside
A covered call ETF on the S&P500 would replicate that same strategy on a portion of the 500 stocks of the index in order to increase the income (repaid as dividend) against more limited upside. To many, that is a very interesting proposition. We go into more details here.
We will also be discussing some of the current covered call ETF’s, resources, etc. As always, we will be more than happy to answer any questions that you might have regarding covered call ETF’s.