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iShares funds are powered by the expert portfolio and risk management of BlackRock. Digital Infrastructure & Connectivity - HANetf et al. VXUS vs. IXUS Vanguard or iShares International ETF? After 15 years, final balances would be $186k, $320k, and $853k respectively. RYLD has a distribution yield of 13.20% and an expense ratio of 0.60%. Parradee Kietsirikul. Topics may span disruptive tech, income strategies, and emerging economies. Dont succumb to mental accounting bias; the premium received doesnt mean much if the market crashes. I designed a dividend portfolio for income investors here that may appeal to you. The logic behind selling call options against assets investors already own is that it ensures investors are covered from a margin call perspective hence the term covered call. Global Xs covered call ETFs deliver an alternative source of income that is uncorrelated with equities and bonds. However, its distribution yield of 11.76% and returns of 11.46% since inception are higher than its Global X peers. But opting out of some of these cookies may affect your browsing experience. To receive a distribution, you must own the ETF the trade must have fully settled on the record date. This material may contain links to third party websites. The ownership of the fund is divided into shares, but shareholders do not have any legal direct claim to the underlying assets. At the end of the day, total return is what matters. Thankfully, some of the distributions of covered call ETFs may be classified as a return of capital or ROC, meaning no taxes (until your cost basis is zero), and most of them have indeed been ROC in many years, but this hasnt always been the case, so that preferable tax treatment is by no means guaranteed. The strategy effectively eliminates all potential upside related to the performance of the ETFs equity holdings. The Future of Digital Payments - Rize ETF, Putnam debuts target-date retirement funds for ESG investors, Newfound Research debuts Return Stacked managed futures ETF, Institutional confidence in crypto bounces back, HANetf partners with Algo-Chain on six ETF model portfolios. The premiums AYLD generates may partly cushion drawdowns. Covered Calls are technically easy and considered conservative. //smoothscroll Your gain is $10 $3 (cost of buying the option) = $7. A covered call ETF holds assets like stocks or bonds, even from an index like the S&P 500, and then sells call options on them, for which the fund receives income immediately in the form of an option premium. //jQuery(function() { For example, a stock is purchased for $39.30 per share and a 40 Call is sold for 0.90 per share. jQuery('#top-link').click(function(e) { Required fields are marked *. New options are simultaneously sold at the time weighted average bid price. What Influences Covered Call ETF Dividend Yields? QYLD seeks yield from the Nasdaq-100 via options premium. The crypto covered call ETFs offered by Purpose Investments provide HIGH yields. In the past year, the price return for Credit Suisse X-Links Silver Shares Covered Call ETN (NASDAQ . Basically, in market downturns, a covered call fund will fall with the market by an amount precisely equal to the markets drawdown minus the income received from the option premium. We retired during Aug 2017 and purchased shares with our SMSF. For QYLD, its the CBOE NASDAQ-100 BuyWrite V2 Index. How to Enhance Income Potential with Covered Call ETFs, The Hongkong and Shanghai Banking Corporation Limited, Sydney Branch, Computershare Investor Services Pty Limited. Its popularity has soared in recent years with choppy, faltering markets, high inflation, and low interest rates during which investors scrambled for yield. Those holdings are just the straight S&P 500, via the same index as XYLD theCBOE S&P 500 BuyWrite Index. The BBH is a sector ETF tracking the biotech sector. I am not a financial advisor, portfolio manager, or accountant. Period. You can screen both CALL and PUT options for buying or selling. The Global X Russell 2000 Covered Call ETF (RYLD) generates income through covered calls on the Russell 2000 index components. Lastly, PBP is an older covered call ETF from Invesco that launched in 2007 and has about $100 million in assets. In this setting, covered call strategies provide something of a solution, and provide a way to invest in the Nasdaq 100 while also generating yield. are for illustrative purposes only. Author's note: This article was released to CEF/ETF Income Laboratory members on December 9th. Their total return performance has been nearly identical historically. { These cookies will be stored in your browser only with your consent. This is an important distinction between the ETF and the mutual fund. This strategy allows covered call ETFs to have huge distribution yields upwards of 10% that typically pay monthly, making them attractive to income investors and retirees. Because were looking at total return, we can exclude PBP because its total return is virtually identical to XYLD. Now it's not all perfect, since they're writing call options they need to sell the holdings every time they end up in the money. JEPI is an income ETF from J.P. Morgan. Should I borrow money to invest in ETF:s? Hamilton Enhanced Multi-Sector Covered Call ETF. DIVOs tactical strategy seems to have paid off over the backtested period, even with just a handful of stocks. window._wpemojiSettings = {"baseUrl":"https:\/\/s.w.org\/images\/core\/emoji\/14.0.0\/72x72\/","ext":".png","svgUrl":"https:\/\/s.w.org\/images\/core\/emoji\/14.0.0\/svg\/","svgExt":".svg","source":{"concatemoji":"https:\/\/www.etfstrategy.com\/wp-includes\/js\/wp-emoji-release.min.js?ver=6.1.1"}}; Maybe, but probably not. This is the best job in the world. The management expense ratio is 0.72% and the annual management fee is 0.65%. This is because covered call ETFs for stocks will fall with the broader stock market. The profit from selling the shares isnt realized until you actually make the sell, but it can still be interesting to follow the daily changes in share price for Apple. Also have a look at ProWriter our free option trade planner software. We and our partners use data for Personalised ads and content, ad and content measurement, audience insights and product development. A covered call ETF can boost investor income by writing call options on the stocks held by the ETF. Covered call funds are extremely popular investments in retirement circles, and . var el = jQuery(this); The call option written is considered covered because the underlying security is already owned. Source: PortfolioVisualizer.com. Covering calls. If you would like to change your settings or withdraw consent at any time, the link to do so is in our privacy policy accessible from our home page.. This is because covered call sellers receive two income streams: first the dividends, second the premiums from the calls they sell. The Global X Nasdaq 100 Covered Call ETF (QYLD) follows a covered call or buy-write strategy, in which the fund buys the stocks in the Nasdaq 100 Index and writes or sells corresponding call options on the same index to generate income over and above dividends. Clicking Confirm below will take you to a different website, intended for jurisdictions outside the US. Create a Trading Plan easily with My Covered Calls and ProWriter free software. Potential downside risk management. }, settings); This subreddit is for investors who are interested in discussing dividend growth investments, income investments such as covered call ETFs or any income investment/investing in particular. By writing covered call options in return for the receipt of premiums, investors forego the opportunity to benefit from potential increases in the value of the Nasdaq 100 Index above the exercise prices of such options but will continue to bear the risk of declines in the value of the Nasdaq 100 Index. JEPI is a comparatively newer ETF from J.P. Morgan that launched in mid-2020 and has quickly amassed nearly $19 billion in assets. The relation is linear. And you can, of course, opt-out any time. But what I find even more exciting is using this strategy on Stocks and Exchange Traded Funds (ETFs) on the US markets. Always check up on applicable laws and regulations before you make any investment. Technically these funds also have indexes for a hypothetical buy-write strategy. Using live fund data, heres a backtest for the period 2008-2022 for PBP, the covered call ETF from Invesco for the S&P 500 that we covered earlier, a 60/40 portfolio using PBP for the equities side, and a classic 60/40 portfolio using a starting balance of $1 million and monthly withdrawals of $5,000, adjusted for inflation:Source: PortfolioVisualizer.com. Global X S&P 500 Covered Call ETF (XYLD) The Global X S&P 500 Covered Call ETF (XYLD) is a high-yield covered call ETF that invests in high-quality, high dividend-paying stocks from the S&P 500 index. Beginners Start Here 10 Steps To Start Building Wealth, What Is the Stock Market? Market Pulse. Removing that high yield, the capital appreciation component of some of these funds has actually been negative since inception, as is the case for QYLD:QYLD without dividend reinvestment. I think the PBP never attracted assets is because it launched right before the Global Financial Crisis of 2008 and then looked terrible during the markets recovery, as covered calls cap upside potential. Past performance is not necessarily a guide to future performance. Distributions are paid on the payment date, which is announced ahead of time on the ASXs website. J.P. Morgan Asset Management's website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. On May 15, 2016, you look at the market price for Apple shares and see that it is $120. Introduction What Are Covered Call ETFs and How Do They Work? Shares are created and redeemed by authorized participants, commonly referred to as APs. In a nutshell, JEPI is holding a basket of low-volatility stocks selected from the S&P 500 Index (the largest 500 U.S. companies), on which it sells covered call options via ELN's (Equity Linked Notes) to generate income. else This makes XYLD more diversified than QYLD. QYLD - Global X NASDAQ 100 Covered Call ETF. Hybrid index performance (noted as "Index" above in the chart) reflects the performance of the S&P 500 Stock Covered Call Index through December 14, 2017, the Cboe S&P 500 2% OTM BuyWrite Index through August 20, 2020, and the Cboe S&P 500 BuyWrite Index thereafter. In the example above, a call option was issued for 1 Apple share. As the seller, Im hoping it stays flat. jQuery.fn.topLink = function(settings) { Australia. To be fair, covered call funds certainly arent the worst way Ive seen to try to generate income. Here is an example that is for illustrative purposes only: From a tax perspective, the covered call option premium (cash flow received from writing a call option) is considered a capital gain. Check all the figures against live data when the market is open, just to make sure, and if you are happy with the plan then trade the plan. Shareholders will, in most jurisdictions, pay tax on the money they receive from the fund. When we talk about taxes and ETF, were are usually taking about two things and it is important to not mix them up. Investment products discussed (ETFs, mutual funds, etc.) RYLD - Global X Russell 2000 Covered Call ETF. Respectively, they track the S&P 500, the Nasdaq 100, and the Russell 2000. In the month of August, the VIX increased from 22.84 to 25.87. Click here to download the August 2022 Covered Call Report. The premiums not only provide an income uplift, but also a second stream to draw from if dividends fall or dry up. Furthermore, options premiums tend to be inversely correlated to dividend yieldswith lower dividend yielding stocks producing higher premiums creating a natural hedge. Covered call ETFs do usually have much higher fees than, say, a plain index fund for the S&P 500 Index like VOO from Vanguard. Convenience. It is for instance possible to create a situation where and ETF where the underlying is palladium actually gain when the price of palladium drops. As part of this, the fund holds the constituents of the S&P/ASX 200 Index while selling at-the money1, call options on the same index on a quarterly basis. If you are looking to target the gold sector and also value a very high-income stream, GLCC is an excellent ETF to consider for your portfolio. If the retiree is withdrawing regularly for current income, some allocation to a covered call ETF may arguably be good for retirement, but this of course depends on the investors personal goal(s), time horizon, risk tolerance, and other investments in the portfolio. In some jurisdictions, the income count as dividend payments and receive a more favorable tax treatment than other types of capital gains. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. The strategy may be utilized by investors who wish to diversify their sources of yield away from equities and bonds which historically have struggled during rising rate environments. Because of these things, recognize that it inarguably makes little sense for the young accumulator with a long time horizon to own a covered call ETF. Lets assume that you purchase 100 shares in Apple. The consent submitted will only be used for data processing originating from this website. DIVO is an income-focused covered call ETF from Amplify that launched in late 2016 and has roughly $2.6 billion in assets. Capture the growth potential of Chinas New Economy - MSCI, Internet: The Infrastructure for Innovation - First Trust. A covered call ETF is a fund that purchases a selection of stocks and writes call options on them to boost investors' yield. This huge income has tax consequences that investors should also consider. Dividends from covered call ETFs may be classified and thus taxed as return of capital (ROC) or ordinary income, depending on the year. You should consult an independent investment adviser prior to making an investment in order to determine its suitability to your circumstances. el.hide(); //in case the user forgot The ETF uses a covered call writing strategy to . Best thing, the reports calculate the returns At The money (ATM), In The Money (ITM) and Out of The Money (OTM); Exercised or Not-Exercised. Investments may go up or down in value and you may lose some or all of the amount invested. Call options give the buyer the right to purchase a stock at a specified price before a certain date. (7HANDL ETF). Leverage off existing Shares in your super to grow your fund using covered call options. On June 24, Canadian ETF provider Horizons tapped the services of Exchange Traded Concepts to roll out its first United States exchange-traded fund, Horizons S&P 500 Covered Call ETF . QYLD writes call options on the Nasdaq 100 Index, saving investors the time and potential expense of doing so individually. None of these links imply Global Xs support, endorsement or recommendation of any other company, product or service. We and our partners use cookies to Store and/or access information on a device. }); You canbuy shares and sell call options to earn monthly income from the Australian Stock Market (ASX). These ELNs introduce a layer of credit risk for investors. This forecast is made public on the announcement date. However, exchange-traded funds give investors of all stripes access to them with covered call ETFs. On the payment date, investors will receive the cash or new ETFs, if they choose to reinvest their distributions. Here are seven covered call ETFs to buy today. If the fund sounds familiar, that's because it used to be the Horizons NASDAQ 100 Covered Call ETF when we last . You should consult an independent investment adviser prior to making an investment in order to determine its suitability to your circumstances. These cookies do not store any personal information. This website uses cookies to improve your experience. It also has the added benefit of reducing risk compared to unwritten portfolios making it a valuable portfolio construction tool. View the latest ETF prices and news for better ETF investing. With more than twenty years of experience and a global line-up of 1,250+ ETFs, iShares continues to drive progress for the financial industry. XYLD - Global X S&P 500 Covered Call ETF. The subsequent website(s) may be governed by different privacy policies, terms and conditions, or regulatory restrictions. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. Instead, the issuer of the call option will settle by giving you your profit in cash. Dev.Max DrawdownSharpeQYLD2.86%14.45%-22.74%0.18XYLD4.41%14.98%-23.43%0.28DIVO11.51%15.69%-18.86%0.69KNG9.42%17.66%-23.52%0.53SP5009.97%18.87%-23.95%0.5360/406.30%11.64%-20.62%0.48Data Source: PortfolioVisualizer.com. }); Global X ETFs has introduced a new suite of yield-focused ETFs in Australia that aims to deliver an alternative source of income. GLCC is marginally more expensive than peers in the covered call ETF space but is still priced reasonably. I thoroughly recommend ProWriter, My Covered Calls Pty Ltd. All rights reserved. How It Works & How to Invest in It, How To Invest in an Index Fund The Best Index Funds, Portfolio Diversification How To Diversify Your Portfolio, Dollar Cost Averaging vs. Even then, as Ive noted elsewhere and as the backtests above show, there are more efficient, more effective ways to de-risk a portfolio, like bonds. The major benchmark of the US technology sector, it plays home to Microsoft, Amazon, Apple, Netflix and Tesla. Investors looking to adapt to the current macroeconomic environment should consider the benefits of options writing strategies - in particular, using ETFs that implement a covered call overlay. That is, whereas XYLD is using large caps via the S&P 500, RYLD covers the rest of the U.S. market with smaller stocks. Here well review the best covered call ETFs for 2023. AYLD seeks to generate income through covered call writing, which historically produces higher yields in periods of volatility. Even if you hate bonds, we can construct a demonstrably superior strategy to QYLD, for example, with even the simplest, naive mix of 50% NASDAQ-100 and 50% T-bills, which are the risk-free asset.Ive created that pie for M1 Finance here if youre interested. see my special first month 1/2 price offer. Instead, it aims to generate high, steady income from the option premiums. VOO vs. VTI Vanguard S&P 500 or Total Stock Market ETF? }; Stock Market Overview Market Momentum Market Performance Top 100 Stocks Today's Price Surprises New Highs & Lows Economic Overview Earnings Within 7 . Global X has launched an ETF implementing a covered call strategy tied to the Russell 2000 Index, which measures the performance of small cap stocks. Earlier I said QYLD is the most popular covered call ETF. 10. The two most popular covered-call ETFs are QYLD and JEPI respectively paying 11.5% and 7.5% APY. Franking credits are distributed via the year-end AMMA statement, which is usually issued around the end of financial year (in July or early August). Stocks. The NASDAQ 100 is a tech-heavy index of non-financial large cap growth stocks in the U.S. that trade on the Nasdaq exchange. Secured by PayPal. Subscribe now, for free, or take the special offer, to see how to use the MyCC reports to quickly find the highest option returns available on the ASX. Global X does not control and is not responsible for the information contained within third party websites. To receive a distribution, you must own the ETF the trade must have fully settled on the record date. Many covered call ETFs are available in the US and Australia with unbelievably high yields. The tax that . A shareholder may be obliged to pay one type of tax on certain payments received from the fund and another type of tax for other payments received from the fund. The Global X S&P/ASX 200 Covered Call ETF (AYLD) uses a "covered call" or "buy-write" strategy in an effort to generate yield enhancement over and above dividends and franking. The story goes something like this: For the retiree, current income is used monthly for expenses and thus should be an important focus, so the high distribution yield from a covered call fund makes for a higher safe withdrawal rate because it allows you to avoid dipping into the principal as much, which is particularly useful during crashes and bear markets. . It is a very inexpensive tool of the trade for my new business. I wrote a separate comprehensive post on QYLD here. 24/7 access to ASX derived option data. But should we buy one of those ETFs to collect the passive income. Links to these websites are not intended for any person in any jurisdiction where by reason of that person's nationality, residence or otherwise the publication or availability of the website is prohibited. In fairness, novice investors likely see the extremely attractive, high distribution yields of these funds and dont look much further, and they probably dont understand how covered calls work. document.getElementById("ak_js_1").setAttribute("value",(new Date()).getTime()); Sign up to receive email updates when a new post is published. How to Generate More Income from Your SMSF, Long Covered Calls Tutorial with Trading Plan, 5 Steps to Trading Covered Calls (Must Read), We want to buy shares and sell options (Buy-Writes), I already own shares and want to learn to write covered calls, We have blue chip shares in our super and want to write covered all options, What's a covered call. The logic behind selling call options against assets investors already own is that it ensures investors are covered from a margin call perspective hence the term covered call. QYLD | A complete Global X NASDAQ-100 Covered Call ETF exchange traded fund overview by MarketWatch. The ticker symbol is ZWB for the BMO Covered Call Canadian Banks ETF. price-to-earnings ratio), low volatility, and ESG, resulting in a basked of a little over 100 holdings. If you on the other hand issue a call option where you already own the underlying share, you dont have to purchase this share on the open market on the day when the call option holder exercises the right to purchase the underlying. jQuery('body,html').animate({scrollTop:0},800); The buyer of the call option has the right to buy the underlying at the strike price at or before expiration.For example, if I own a fund like QQQ for the NASDAQ 100 and I think its going to be relatively flat for the next 30 days or so, I might sell a call option on it, for which I receive cash immediately (called the premium). It is one of three covered call ETFs from Global X; each use a different subset of the U.S. stock market. A covered call ETF is a fund that holds assets like stocks or bonds and writes call options on them, usually to generate income and a high distribution yield. Covered calls are also referred to as a buy-write strategy, i.e. The CBOE NASDAQ-100 BuyWrite Index is a benchmark index that measures the performance of a theoretical portfolio that holds a portfolio of the stocks included in the NASDAQ-100 Index, and "writes" (or sells) a succession of one-month at-the-money NASDAQ-100 Index covered call options. Download ProWriter software, for free,and create your Trading Plan. The Australian Stock Exchange (ASX) provides a comparison of the ASX200 index and the S&P ASX Buy Write index, as per the accompanying graph. Remember what I said earlier. Tail Risk What It Is and How To Hedge Against It, I Bonds Explained (US Savings Bonds) Ultimate Guide (2023), JEPI ETF Review JPMorgan Equity Premium Income ETF, Sharpe Ratio vs. Sortino vs. Calmar Risk Adjusted Return, Portfolio Risk Explained How To Think About Risk and Volatility, HNDL ETF Review Is HNDL a Good Investment? Global X Management (AUS) Limited ACN 150 433 828 AFSL No 466778. HOME. Do your own due diligence. The buyer of that call option is hoping QQQ goes up. Your email address will not be published. It uses equity linked notes, or ELNs, that basically have covered call mechanics baked in. Planning and writing covered call options is easy with My Covered Calls. Details of payment dates and frequencies are available on the funds website. The exact details of how an ETF works will vary from one jurisdictions to another. QYLD seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Cboe Nasdaq 100 BuyWrite V2 Index. JEPI - JPMorgan Equity Premium Income ETF. It is mandatory to procure user consent prior to running these cookies on your website. I lead the Paid Search marketing efforts at Gild Group. Expiring options are bought back at the time weighted average ask price between 4:20 pm and 4:25 pm Sydney time. While these forecasts will be as accurate as practically possible, they are only estimates and are subject to corrections and revisions. No, dividends from covered call ETFs are not qualified. I'm not a big fan of social media, but you can find me on LinkedIn and Reddit. This has worked out well historically with a greater total return than its broader counterpart XYLD since inception, but DIVO is also much less diversified with only 25 holdings. The BMO Europe High Dividend Covered Call ETF ( TSX:ZWE) is another great way to collect dividend income. Covered Calls ETFs can be . //usage w/ smoothscroll shares) that you own, and issue a call option for them. With a 9.58% yield, XYLD is one of the highest-yielding covered call ETFs on the market. In the interest of full disclosure, its also worth noting that these short backtests paint a somewhat unrealistically rosy picture for these covered call funds. The information on this website is for informational and recreational purposes only. Covered Call ETFs. QYLD seeks to generate income through covered call writing, which historically produces higher yields in periods of volatility. When you bought this option, you paid $3 for it. We would like to congratulate Global X ETFs AU on the launch of their new ETFs AYLD, QYLD and UYLD on ASX today. Call options are usually sold to generate income in a flat or mild bear market. (Reader note: For the record, we are not endorsing covered call funds generally or the Hamilton fund in particular. An example of data being processed may be a unique identifier stored in a cookie. A covered call is an options strategy whereby an investor holds a long position in an asset and sells or writes call options on that same asset in an attempt to generate more income (the additional income from the options premium) than the asset would otherwise provide on its own from dividends or other distributions. Covered call strategies generate additional cashflow from investments. As Lead switchWidth: 810, The S&P/ASX BuyWrite Index measures the total return of a hypothetical covered call strategy applied to the S&P/ASX 200 Index. 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Details of payment dates and frequencies are available on the funds website. So some small allocation to a covered call fund may be warranted for the income investor or retiree. Wed expect buy-write strategies to outperform over brief periods of flat or mild bear markets when other assets like stocks and bonds are all declining, such as we saw for some months in the past few years.