About

The ticker for the covered call ETF is QYLD. This fund tracks the Nasdaq 100 Index so effectively is a large cap fund. This ties in well with our portfolio diversification. The structure of this fund is it trades options. This is beneficial in times of high volatility. Options trading means you set a price at which somebody can buy your stock, if they buy the stock at the price you have set you have made a gain which is then capitalised and distributed to the members of the ETF. If nobody buys your stock at your set price then you lose the cost or premium it took to list the option. This can happen if the stock was to drop in price and no one is interested in purchasing. 

So covered call strategies work well when there is tonnes of liquidity, heaps of buyers and sellers moving in and out of stocks this is how money can be made. It is unlikely that this strategy can actually beat the index because you will be paying taxes on any distributions, but the goal here isn’t maximum efficiency it is here to create an income.

What to Look Out For

The management fee sits at 0.6% which is fairly high, however it takes a lot more work to this fund than tracking a standard index. Underperformance to it’s underlying index is expected, the income produced will be taxed and upside is extremely limited to generating income mostly.

Pros

• Monthly Income
• Relatively stable distributions
• Great track record
• Tracking large cap stocks, high liquidity
• Somewhat uncorrelated to stock market fluctuations, volatility becomes beneficial

Cons

• Fees are higher than just buying the index (equiv. NDQ by Betashares)
• Unlikely to beat the underlying index
• Concentrated to largely tech sector and single country risk

Conclusion