08-28-2021, 06:46 PM
(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.
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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
