01-01-2022, 07:18 PM
I know there is considerable interest in the covered call ETFs like QYLD-NUSI-JEPI etc. I am interested as well. I write options almost daily so I know the plan has some merit, but I am still skeptical for the following reasons.
-We can see the management fee, but I think there are fees "hidden" from the investor. Actively managed funds have costs. Active option funds have even more costs. Fees I can avoid, and I'll share the costs in an example. It would take about 30 minutes per month to execute the trades after some quick and uncomplicated math.
-My real cause for concern is I am not at all convinced these funds are any less dangerous in an abrupt down market. And perhaps even worse in a protracted bleed out. Fact is, I can't avoid that unless I spend money hedging every month. I currently don't plan to do that. That will be a "side stat" if I get scared and wish to try it. An event like the first days of Covid might persuade me. Bottomline is the ETFs stifles your chances for gains and may offer no downside protection in return. I don't like that plan. It is caused by mechanically selling calls at the money. I am going to sell them 2% out of the money. We will see what yield this delivers but it seems close enough to what the ETFs pay out monthly. I am not firm on the 2 %, but the math seems to work in the 1 1/2 or 2% range.
So how will this work? I need to lock in on some mechanical rules. Not completely inflexible, but choice A or B given market parameters. I can't just freestyle this or the comparison will be meaningless. If I did it right now it would look something like the following. (Keep in mind I have to hold 100 share lots). I can't just nibble like I could if I bought the ETF.
I'll put details of sample trades in the next post......
-We can see the management fee, but I think there are fees "hidden" from the investor. Actively managed funds have costs. Active option funds have even more costs. Fees I can avoid, and I'll share the costs in an example. It would take about 30 minutes per month to execute the trades after some quick and uncomplicated math.
-My real cause for concern is I am not at all convinced these funds are any less dangerous in an abrupt down market. And perhaps even worse in a protracted bleed out. Fact is, I can't avoid that unless I spend money hedging every month. I currently don't plan to do that. That will be a "side stat" if I get scared and wish to try it. An event like the first days of Covid might persuade me. Bottomline is the ETFs stifles your chances for gains and may offer no downside protection in return. I don't like that plan. It is caused by mechanically selling calls at the money. I am going to sell them 2% out of the money. We will see what yield this delivers but it seems close enough to what the ETFs pay out monthly. I am not firm on the 2 %, but the math seems to work in the 1 1/2 or 2% range.
So how will this work? I need to lock in on some mechanical rules. Not completely inflexible, but choice A or B given market parameters. I can't just freestyle this or the comparison will be meaningless. If I did it right now it would look something like the following. (Keep in mind I have to hold 100 share lots). I can't just nibble like I could if I bought the ETF.
I'll put details of sample trades in the next post......