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Covered Calls ETF
Was looking for some income oriented investments to add and came across a few Covered Call ETFs offered by Nuveen. They were broken down between the DOW, Nasdaq 100 and SP500. The dividend stocks are priced pretty fully and the same with most preferreds. This looked like an interesting alternative to generate some income and the Managed Distribution looks to be in the 6.5% range. This wouldn't be a big position but it seems like something that might be a nice addition to a portfolio. Anyone own any of these or have any advice on them? Tickers are DIAX, SPXX, and BXMX. I find these appealing since I can participate in covered calls without having to do them on individual securities in my account.
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Stocks/Investments Moderator
Interesting comparing the performance of the SPXX to the SPY. Looks like the SPXX, matched the performance of the SPY but then add on the 6% dividend. Looks like a no brainer, so I'm guessing I'm missing something
Covered Calls work great for generating return on a stock that you own, that you think won't appreciate much. But, you cap your upside gains. So I'm not sure why, these funds would track the same, as the index they sell the calls against. I wonder if the risk is to an increase in volatility.
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i did some more checking and the Spxx fluctuates between 35percent and 70 percent covered calls and the BXMX is 100 percent. I have a long position in SPY so I may do the BXMX for income generation. Crazy how many alternative ETFs are out there now. These actually look good though for what I'm trying to accomplish.
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Just curious if your are long spy, why not sell a covered call yourself and skip the fees associated with a ETF? Opening your own brokerage account is easy.
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The money they distribute is considered qualified dividends (for the most part). If I sold calls and they were short term I believe I would get taxed at short term capital gains which I think is ordinary income. Also they don't sell calls on the whole position, they vary the coverage so I'm also paying for their expertise in selling the calls. This just appears to be more tax efficient and easier for me to participate so that's what I'm paying for. It might be better to do it myself but I would probably need a lot of shares to do it and a lot of time.
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Yes you would be taxed if not in a IRA account. Hence the reason I use futures and options on futures in my margin account so all activity is treated with the 60/40 rule. However I use covered calls in my IRA all the time..... the only problem is I am not bullish on spy so I am carrying negative deltas using covered puts.
Good luck and good trading.
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With the SPXX they also write calls on the individual stocks in the index and with baskets in the index so they actually do more than just sell calls on the entire index. The BXMX just sells calls on the index itself. I forgot to mention that initially.
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