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08-18-2021, 10:28 PM
(This post was last modified: 08-18-2021, 10:31 PM by fenders53.)
Ken,
Here is the extremely simplified version of why NUSI is the safest. The reality is the fund flips options constantly to account for changing market conditions, and options prices change with volatility. The fund strives to pay a 7% distribution, pay the funds management and trading fees, limit drawdown to 10-15% and allow some room for limited capital appreciation. These made up numbers are just for illustration.
Fund invests in QQQ and current price is $100.
-They sell a call at strike price 103 and collect a $3 premium.
-They buy a protective put at strike price 85 and pay $1
So they start off the month with $2 credit and they can pay your dividend and fees.
-ONE month goes buy and QQQ is at 102. The fund now has $2 more that should be reflected in the share price.
-Or QQQ flies high and closes at 108. Fund forfeited the rights to any profit over 103 because that is the call strike price.
-Or QQQ drops 10% during month and fund lost $10 or 10%. There is no downside protection. Fund can lose 10% six months in a row if the market is severe. Fund still has the $2 monthly option profit to pay your dividend.
-Or a flash crash like last March. QQQ drops to 75 in a few weeks. Fund bought put protection at 85 so you are only down 15%. (10-15ish goal)
As I said I made up tidy numbers to illustrate strategy. In real life option prices change significantly with wild swings in share price. They buy and sell them constantly, might make a profit, and they have to maintain the protection level by keeping the strike appropriate to keep you safe. This is why the protection goal is a 10-15% range and not a precise number. Most of the other funds like QYLD do not buy protection. They cap your gains and you can still get slaughtered. But it allows the 12% dividend, and in theory a chance the fund outperforms QQQ in a basically sideways market.
So what is the catch? The tech bubble, or 2008 when QQQ was devastated. The dividend could be paid in a protracted down market, but at some point the yield drops or you start losing excessive capital. It's not a 7% CD of course. In most markets it should not turn into a yield trap.
Anyway it looks a lot better than most of your high yield hocus pocus. An acceptable fund for you IMO. You already have a lot of QQQ exposure. Capping the risk on some of your tech isn't going to hurt your port returns. You could do effectively the same thing with a QQQ holding, sell calls and use a stop loss. I know you don't want to bother with that but the point is NUSI isn't particularly complicated. Some of the other funds may or may not be.
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Fenders53,
"You could do effectively the same thing with a QQQ holding, sell calls and use a stop loss.
I tried to do this with a OTO order in the past . First selling the stock and then buying the option. The broker's software would not allow that because after executing the sale, I would be short a naked call. My trade permissions do not allow me to sell naked calls. After reading your post, I searched for a solution. An article said that it was possible to execute a OTO order by buying the option first and then triggering a sell of the stock, The article did caution that calculating the price to purchase the call was difficult to determine because of the variables involved. The article said the best way to exit the trade was to evaluate the situation and make a determination. This, of course, isn't very practical because it would require the constant ability to monitor the market and make the trade. Would you have a recommendation for values that would make an OTO trade like this workable? What can be done if the stock drops enough over time that selling calls at the purchase price is futile?
Thanks, mid range
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When I put on a covered call, I take it off as a covered call if it drops to your stop level. (hard stop or mental stop). No calculation of call price required, the price is what the price is when your stop gets hit, period.
I'm known as the non roll guy. Trade works or it doesn't. I don't spend my time nor capital defending trades.
IOW, the stock and the call or exited simultaneously, I use TOS. Other platforms may not have that capability.
Another drawback to doing this is the cost of 100 shares may be prohibitive.
Typically this collar strat that NUSI uses is not for opening positions but for positions that one has held and is significantly profitable on
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08-19-2021, 07:07 AM
(This post was last modified: 08-19-2021, 07:41 AM by fenders53.)
Midrange,
I should have left that out. My IRA broker would give me fits trying to do it. I could fix that if I cared too. I was just saying the process isn't so complicated an option novice couldn't understand it. I wasn't approaching this as a single trade but a strategy someone might employ for years if they liked. That is Ken's intent.
In any event, that is off track for Ken. He doesn't do options at all. He does like to jump down yield trap holes though and I know he is going to get burned sooner or later. I was trying to help him understand NUSI and the collaring strategy they use. NUSI isn't on my buy list. It probably works for him, and much better than some of his other high income ETFs.
Mike is an option roll heathen. He'll be proud of me tomorrow when I surrender on a few. Nobody likes a quitter. 
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(08-19-2021, 07:07 AM)fenders53 Wrote: Mike is an option roll heathen. He'll be proud of me tomorrow when I surrender on a few. Nobody likes a quitter.
A Man's Got To Know His Limitations.
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(08-19-2021, 03:30 PM)NilesMike Wrote: (08-19-2021, 07:07 AM)fenders53 Wrote: Mike is an option roll heathen. He'll be proud of me tomorrow when I surrender on a few. Nobody likes a quitter.
A Man's Got To Know His Limitations.
I'm going to come back and read the recent posts carefully when I have time, but ...
A Harry Callahan reference! Yes!
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(08-19-2021, 03:30 PM)NilesMike Wrote: (08-19-2021, 07:07 AM)fenders53 Wrote: Mike is an option roll heathen. He'll be proud of me tomorrow when I surrender on a few. Nobody likes a quitter.
A Man's Got To Know His Limitations.
Yeah I will consider rolling capital out a few weeks or a month for 1/2%. It sits in the cash pile otherwise. This time I would be tying up 45K capital virtually for free as they are that deep in the money. Oddly enough stable low beta tickers. Just dead stocks on no tragic news for now. Time to regroup.
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(08-18-2021, 10:28 PM)fenders53 Wrote: Ken,
Here is the extremely simplified version of why NUSI is the safest. The reality is the fund flips options constantly to account for changing market conditions, and options prices change with volatility. The fund strives to pay a 7% distribution, pay the funds management and trading fees, limit drawdown to 10-15% and allow some room for limited capital appreciation. These made up numbers are just for illustration.
Fund invests in QQQ and current price is $100.
-They sell a call at strike price 103 and collect a $3 premium.
-They buy a protective put at strike price 85 and pay $1
So they start off the month with $2 credit and they can pay your dividend and fees.
-ONE month goes buy and QQQ is at 102. The fund now has $2 more that should be reflected in the share price.
-Or QQQ flies high and closes at 108. Fund forfeited the rights to any profit over 103 because that is the call strike price.
-Or QQQ drops 10% during month and fund lost $10 or 10%. There is no downside protection. Fund can lose 10% six months in a row if the market is severe. Fund still has the $2 monthly option profit to pay your dividend.
-Or a flash crash like last March. QQQ drops to 75 in a few weeks. Fund bought put protection at 85 so you are only down 15%. (10-15ish goal)
As I said I made up tidy numbers to illustrate strategy. In real life option prices change significantly with wild swings in share price. They buy and sell them constantly, might make a profit, and they have to maintain the protection level by keeping the strike appropriate to keep you safe. This is why the protection goal is a 10-15% range and not a precise number. Most of the other funds like QYLD do not buy protection. They cap your gains and you can still get slaughtered. But it allows the 12% dividend, and in theory a chance the fund outperforms QQQ in a basically sideways market.
So what is the catch? The tech bubble, or 2008 when QQQ was devastated. The dividend could be paid in a protracted down market, but at some point the yield drops or you start losing excessive capital. It's not a 7% CD of course. In most markets it should not turn into a yield trap.
Anyway it looks a lot better than most of your high yield hocus pocus. An acceptable fund for you IMO. You already have a lot of QQQ exposure. Capping the risk on some of your tech isn't going to hurt your port returns. You could do effectively the same thing with a QQQ holding, sell calls and use a stop loss. I know you don't want to bother with that but the point is NUSI isn't particularly complicated. Some of the other funds may or may not be.
Okay, I finally had some time to read this. So if I'm understanding this correctly, NUSI can bleed out over time like any other fund, but in a sudden market crash, it has a circuit breaker.
***
On a related note, look what showed up in my Transactions list for the first time today:
08/27/21
Dividend
ETF SERIES SOLUTIONS NATIONWIDE RISK MANAGED INCOME ETF CASH DIV ON 125 SHS
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08-29-2021, 05:35 AM
(This post was last modified: 08-29-2021, 05:41 AM by fenders53.)
Yes, that was the point. NUSI won't flash crash and you won't wake up next week down 30%. Most any equity based ETF I am aware of that uses derivatives is subject to bleed out over time if the market goes in the wrong direction for an extended period of time. You would have time to see the trend and make a decision. IMO NUSI is better than most of the other covered call ETFs given high valuations. Give it five years and some of the others won't exist or have little AUM. Most of the other high yield options just get hit, and you wait for your capital to hopefully return while hoping the dividend doesn't get cut again. They usually have real estate and/or interest rate/bond market risk.
6% is about the upper limit for yield that doesn't involve significant risk of capital exceeding 10%. You can do that with preferreds usually.
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Serious question, why are many here posting of their purchases and sales nearly daily averse to using timing models? The time is already spent analyzing the market, single names. Do some believe the models don't work? I am trying to understand the reluctance.
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08-29-2021, 10:40 AM
(This post was last modified: 08-29-2021, 10:47 AM by fenders53.)
(08-29-2021, 10:24 AM)NilesMike Wrote: Serious question, why are many here posting of their purchases and sales nearly daily averse to using timing models? The time is already spent analyzing the market, single names. Do some believe the models don't work? I am trying to understand the reluctance.
I doubt most will understand your question.
I post this thread too much because it is hard to watch, but the place is supposed to be about helping others (my purpose other than entertainment). I don't need a complex timing model. I can look at a 10-20 year chart and see almost all of these are destined for a hard dip that wipes out years of high yields over and over. I own none of it unless the quality has corrected unreasonably hard. The high yield never stops attracting new buyers, and I doubt that will change soon.
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(08-29-2021, 10:40 AM)fenders53 Wrote: (08-29-2021, 10:24 AM)NilesMike Wrote: Serious question, why are many here posting of their purchases and sales nearly daily averse to using timing models? The time is already spent analyzing the market, single names. Do some believe the models don't work? I am trying to understand the reluctance.
I doubt most will understand your question.
I post this thread too much because it is hard to watch, but the place is supposed to be about helping others (my purpose other than entertainment). I don't need a complex timing model. I can look at a 10-20 year chart and see almost all of these are destined for a hard dip that wipes out years of high yields over and over. I own none of it unless the quality has corrected unreasonably hard. The high yield never stops attracting new buyers, and I doubt that will change soon.
You know the timing models of which I speak, they are not referencing any tickers mentioned in this thread.
Allow me to rephrase my question, your Honor (LOL): Why chase 7,8,9% high yielders when there are far superior ways to get even better returns?
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