The latest “hot” investing idea that I see all over now are Covered Call ETF’s….
Anybody have any experience with them?
SPYI, JEPI, QQQI
I took a quick peak and it looks too good to be true…..Dividends paying around 10% a year?
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That’s enough for me. No thanks.
There was a bit of a thread going earlier on some here on the free side and there are a few on the premium side as well.
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It isn’t, but that doesn’t mean that there isn’t a downside as well. I have/had owned one of these covered call strategies since last year (JEPQ). I sold it just last week. Not because something was wrong with it but because my reason for owning had. I switched to something more aggressive for the time being.
I will probably revisit owning this if it looks like we are going to go sideways (which is why I picked it up late last year).
A decent cover call strategy should produce returns near 1% per month when volatility is high so 9 or 10% is not too surprising. Just keep in mind that if the market goes the wrong direction, the value of these positions is going to drop much in line with the rest of the market and the price is not likely to recover as quickly. JEPI, which you mentioned, is still negative from its Jan 22 value ($62 vs $56).
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If the SPY goes up to new highs eventually, then what is the rush if the dividends are paid consistently month in and month out, even in a down or bear market?
I don’t really need to worry about the Net Asset Value declining in the S&P. It would be different if the covered call EFT was following a specific stock or asset, such as BCCC or MSTY. Right?
The dividends are not really dividends. They are premiums from call options and unlike a dividend that will likely be maintained at the same dollar amount as a stock may decrease in value, call options are usually priced in relation to the stock price. Also, call premiums also move with market sentiment. No one is going to pay a high premium when stocks are on their way down.
All that means is that your income is likely to not only decrease in a falling market but also likely to stay lower until the stock price gets back to where it was.
This isn’t a S&P fund paying dividends. This is a covered and naked call strategy that will have volatility in the income well in excess of any dividend-paying investment. You will also not recover as quickly as the underlying NAV as call strategies cap your upside (why JEPI is still underwater).
Lastly, you asked this question and now you are responding defensively. Do you want to learn or have you already made up your mind?
Check out this on JEPQ - what I owned and recently sold:
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Sorry. Didn’t intend my response to have a “tone”.
After doing some research, I am leaning towards starting a 3-5% position in each SPYI and QQQI. Waddle in the shallow end of the pool until I get comfortable….haven’t bought yet, but inching closer and closer…..
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You know, you are right. I went back and reread and I was wrong. My apologies.
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