Covered Call ETFs - Business Famous

It’s a big day here at Always Invested.

Why?

Well we have our first ever guest article. You might know him for his memes, you might know him for his cunning investing tips, or even for his “will not explain” tweets.

Ladies and gentleman, it’s Chris from Business Famous.

For those who didn’t know Chris is quite knowledgeable when it comes to selling covered calls. And if not to make it better he has written us an article over covered call ETF’s. If you aren’t following him on twitter yet you should. (@businessfamous)

And so I don’t spoil anything I’m going to hand it off here…

Side note: If this email is showing up in your “promotions” tab you can fix that by simply dragging it to your main inbox.

“Success isn’t owned. It’s leased…and the rent is due everyday.

- Lebron James

A SAFER PATH TO A HIGH DIVIDEND YIELD

We all love getting dividend payouts – after all, nothing beats passive income!  The biggest problem with dividends is that I want more.  One way to get larger dividend checks are with higher yielding dividend stocks.

But the biggest risk with high yield dividend stocks is falling into a dividend yield trap – where you invest in a stock that shows a high dividend yield.  You only find out later on that the dividend was financially unsustainable and next thing you know, the company reduces or completely cuts the dividend.

However, I’ve recently found a specific style of ETF that generates a high yield dividend payment by selling covered call options.  Because these ETF’s generate a return by using this specific type of stock option, I believe the high yield is more sustainable than a company who relies on profits to pay dividends. 

Here’s how it works:

Take QYLD, for example – one of my favorites.  They hold a portfolio of NASDAQ 100 stocks. They write covered calls against these holdings, which is a type of stock option that limits the upside gains of a stock in exchange for collecting a cash premium upfront.

QYLD uses this strategy to pay a 0.9% monthly dividend (which equates to 11% per year)!

What differentiates QYLD from a high yield dividend stock like Altria (MO), or AT&T (T) is that QYLD is creating this dividend by selling a specific type of stock option, instead of selling merchandise, so they have much fewer moving parts, expenses, etc – fewer things that can go wrong.

Here are some other Covered Call ETF’s and the holdings they use:

Global X

QYLD (NASDAQ 100) 11.21% dividend yield

RYLD (Russell 2000) 10.68% dividend yield

XYLD (S&P 500) 8.31% dividend yield

The above ETF’s focus mostly on dividend yield, so don’t expect much share price appreciation.  The value here is the relatively safe, high dividend payouts.

There are other covered call strategies as well, such as Credit Suisse writing calls against commodities:

Credit Suisse

GLDI (Gold) 11.98% dividend yield

SLVO (Silver) 13.70% dividend yield

And finally, the last type of covered call ETF I wanted to tell you about is the combination dividend yield/share price appreciation ETF’s from Global X.  They aim for half the dividend as QYLD & XYLD, but also look to increase the ETF’s share price as well – for the people who aren’t looking for just a straight income stock:

Global X

QYLG 5.84% dividend yield

XYLG 5.64% dividend yield

Invesco

PBP (S&P 500) 1.41% dividend yield

Wisdom Tree

PUTW (S&P 500) 1.42% dividend yield

You, too, can use the same strategy of writing covered calls against your long term stock portfolio!  Chris has written a book on it that breaks it down into simple and easy-to-understand steps.

It usually pays for itself with your first covered call sale!

Pick it up here for only $10. 

This was a special week with the inauguration. So since we had plenty of extra memes we are including two winners in this email.

Boomers don’t seemed amused.

And with 20k likes Janet takes the cake.

Thanks for reading, if you have any questions, comments, suggestions, etc. about the email send me a DM on twitter. See you next week!