All things STOCKS

05_never_again

Well-Known Member
Joined
Aug 28, 2006
Messages
18,104
Likes
15,307
I didn't realize dog buying was such a big thing.

Anyone ever buy these covered call ETFs? What would be a bad market scenario for owning them (besides the obvious potential to miss out on growth)?

QYLD Isn't Performing As Well As XYLD And RYLD (NASDAQ:QYLD) | Seeking Alpha
You get the stock called away from you if the market goes higher (missing out on gains). And of course if the stock gets crushed, you get your premiums but still lose money on the stock going lower (in the event of a large decline, your gains from the premiums aren't going to offset your loss from holding the stock).
 
Joined
Dec 2, 2011
Messages
35,089
Likes
27,622
I didn't realize dog buying was such a big thing.

Anyone ever buy these covered call ETFs? What would be a bad market scenario for owning them (besides the obvious potential to miss out on growth)?

QYLD Isn't Performing As Well As XYLD And RYLD (NASDAQ:QYLD) | Seeking Alpha
The tax treatment might be really bad. I don’t know if payouts are treated as cap gains/losses and dividends or if there is a third category of payouts. The proceeds from the call selling might could be taxed at ordinary rates. But these are ETFs rather than conventional mutual funds. This is why we have tax accountants and tax attorneys, kids.

Because of the distributions, it might be desirable to hold within a retirement account. BUT when the fund tanks there is no tax advantage in taking those losses when wrapped inside of an IRA.
 

Velo Vol

Internets Expert
Joined
Aug 19, 2009
Messages
31,677
Likes
11,062
You get the stock called away from you if the market goes higher (missing out on gains). And of course if the stock gets crushed, you get your premiums but still lose money on the stock going lower (in the event of a large decline, your gains from the premiums aren't going to offset your loss from holding the stock).
Yes, there's the basic stock/NAV risk.

But what index conditions are specifically bad for a covered call model these use to generate dividends? A rising one with high volatility?

If you're not expecting another 20% year in the market, an 8% to 12% yield isn't bad.
 
Last edited:
Likes: walkenvol

Velo Vol

Internets Expert
Joined
Aug 19, 2009
Messages
31,677
Likes
11,062
The tax treatment might be really bad. I don’t know if payouts are treated as cap gains/losses and dividends or if there is a third category of payouts. The proceeds from the call selling might could be taxed at ordinary rates. But these are ETFs rather than conventional mutual funds. This is why we have tax accountants and tax attorneys, kids.

Because of the distributions, it might be desirable to hold within a retirement account. BUT when the fund tanks there is no tax advantage in taking those losses when wrapped inside of an IRA.
Obviously better to do in the tax-free account.

I glanced at a couple of them last night and part of their Q4 2021 dividends were short-term capital gains. Haven't dug deeper into it yet.
 

95 Vol Alum

Go Big Vols!
Joined
Jan 16, 2010
Messages
51,719
Likes
16,346
There might be another strategy to buy the 5 worst from the previous year. The Dogs are actually the 10 highest yielding names. It’s a strategy that’s been around for about 30 years.
The Motley Fool built their name on the Foolish Four strategy which departed from an equal weighting strategy to allocating 40% (iirc) to the lowest priced of the top 4 dogs.

They walked it back years later but had sold enough books to build their brand by then.
 

05_never_again

Well-Known Member
Joined
Aug 28, 2006
Messages
18,104
Likes
15,307
Yes, there's the basic stock/NAV risk.

But what index conditions are specifically bad for a covered call model these use to generate dividends? A rising one with high volatility?

If you're not expecting another 20% year in the market, an 8% to 12% yield isn't bad.
Relative to the benchmark, it probably does the worst in a fairly strong bull market, yes.
 

Firebirdparts

Best tackle for his weight the old school ever had
Joined
Sep 13, 2014
Messages
1,891
Likes
1,841
I didn't realize dog buying was such a big thing.

Anyone ever buy these covered call ETFs? What would be a bad market scenario for owning them (besides the obvious potential to miss out on growth)?

QYLD Isn't Performing As Well As XYLD And RYLD (NASDAQ:QYLD) | Seeking Alpha
The risk, like a lot of yield strategy, is that you lag the total return of the S&P500. That's a pretty limited risk, but you also will get all the drawdown of a 100% equity position. You'll sometimes talk to a dumb person who says "look at this great strategy that is literally free money!" but the truth is, all strategies are arbitraged by brilliant professionals and they all turn out accordingly. It is what it is.

The history of these funds is available, and also CBOE has a bunch of covered call strategy indices that you can also look at. Go to CBOE.com/usindices and check the "CBOE benchmark strategies" box. Reading about the rules used in each strategy is very helpful.

I have noticed that when people conclude something is "literally free money" then you don't really ever change their minds.
 

BigOrangeMojo

The Member in Miss December
Joined
Jan 24, 2017
Messages
12,322
Likes
34,864
No doubt derserved.;)

How did it turn out?
We did two things they don't like. Contributed privately held stock and backdoor Roth IRA'ed it (although both are completely legal)

Audit still going on. Our methodology for valuing the stock contributed to the IRA in question was the most recent valuation from any P/E Funding rounds. The IRS agent is trying to disregard statute of limitations (and what they did on a prior audit where they agreed with the P/E Funding methodology).

Issue working against us is that the privately held stock got bought out in 2021 at a much higher valuation than prior P/E funding rounds.
 

Velo Vol

Internets Expert
Joined
Aug 19, 2009
Messages
31,677
Likes
11,062
Does anyone use Fidelity?

It told me I bought some stock. I didn't remember when I might have made the order, so I want to view my order history (what date, order specifics).

For some reason I can't find this.
 
Joined
Dec 2, 2011
Messages
35,089
Likes
27,622
Is he using the app?

I'm not the biggest fan of their app
He didn’t say. I couldn’t find the history for at least 5 minutes the first time that I looked using the Fidelity app. Ameritrade also has their transaction history buried deep into the app’s click options. Morgan-Stanley’s app has some great features once you find them. Schwab’s works pretty well. Fidelity’s isn’t user friendly. Especially when setting up limit orders… the quotes suck. I usually open up Ameritrade or Schwab for the stock details while setting up orders in Fidelity.
 

YankeeVol

This is the way
Joined
Mar 11, 2010
Messages
124,337
Likes
41,185
He didn’t say. I couldn’t find the history for at least 5 minutes the first time that I looked using the Fidelity app. Ameritrade also has their transaction history buried deep into the app’s click options. Morgan-Stanley’s app has some great features once you find them. Schwab’s works pretty well. Fidelity’s isn’t user friendly. Especially when setting up limit orders… the quotes suck. I usually open up Ameritrade or Schwab for the stock details while setting up orders in Fidelity.
I only use Fidelity lol.
 

Velo Vol

Internets Expert
Joined
Aug 19, 2009
Messages
31,677
Likes
11,062
I'm still not seeing where you can look back and see the past orders placed, executed or open. The trade confirmations don't indicate when you made the order.

I'm not sure if I still have any open ones left that I'm not able to find. Or if that was the last one.
 

VN Store




Top