Covered Call ETFs: 8 Key Features & Benefits Explained | Best ETFs for High Dividend Passive INCOME!
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- เผยแพร่เมื่อ 26 ก.ค. 2024
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The two important fact to note: when reading a particular fund managers covered call strategy are:
1. what % of the portfolio do they write call options on
2. if they are at the money calls or out of the money calls . That is called the “moneyness of the call option”
Is one better than the other?
Personally I don't think so, they're just different.
The goal is really the same, to make more income while still making sure the ETF share price can grow, although at a reduced rate.
8 Benefits of owning Covered Call ETFs long term
1. Higher Yield vs Regular Dividend ETFs
2. Great Performance during Volatility
3. Easy way to diversify a Portfolio
4. 2 Income Streams instead of 1.
5.Safer and Consistent Source of Income vs Single Dividend Stocks
6.Low Management Fee for what you get
7.Passive “Hand off” Strategy
8.Tax Efficient Income
Great benefits right, what about the downsides? Well there's only 1
You're potentially sacrificing some share price upside. I stress the word potentially because it's when the stock market is in Strong BULL mode, or stock prices are dramatically rising that the CC Options the fund manager sells would be exercised right. In a FLAT or downward market, it's all free money. I also stress the word SOME, because like we saw earlier, the fund manager only sells CC’s on a certain % of the portfolio, not the entire thing.
What does this mean in practical terms, well it means that in terms of share price performance over the long term, CC ETFs will never beat an identical ETF that doesn't use the CC Strategy.
So the million dollar question, Why were these ETFs created? For who were they designed for?
These ETFs are specifically designed for Investors who are looking to get maximum cash flow, or maximum income without any added risks like leverage for example
They are perfect for Passive Income investors like myself who just want to BUY and HOLD ...that don't want the hassle of deciding when to sell stocks to make a profit.
I'm up 20% on this thing, should i sell it, should i wait.
I don’t want that stress or anxiety. I want simple and easy. I want maximum income, every month and I don't want to be worried or care about what the stock market is doing.
The fact that CC ETFs actually perform better during stock market volatility and crashes is a HUGE psychological advantage and very underrated if you ask me. Imagine, not caring about what the stock market is doing, consistently getting income every month regardless of what nonsense is happening in the economy. CC ETFs can give you that peace of mind.
They are a perfect fit for retirees. Because retirees want cash flow, they want income, they don't want to think about when to sell shares, they want to enjoy the rest of their lives in peace and happiness. CC ETFs not only provide stellar, consistent income but also peace of mind.They were designed to BUY and HOLD, not buy low and sell high. If you want to play that game you're much better off investing in individual stocks or going to the Casino.
Most of the critics of these ETFs always mention the same thing, the stock price trend is not good.
And there right, but listen my friend, I don't care about stock price trends. Why would I if I don't intend to sell my shares anytime soon? Why would I ever sell my shares if it's giving me income every month.
Think about it… if you have a CC ETF that's giving you 7.5% Dividend Yield a year. Which means your making 7.5% interest a year. 7.5% is pretty common with these ETFs BTW...
After about 13 years, you make all your money back (or you initial investment) in Dividends alone. Every dividend payment after that, as well as how much the stock is worth is pure profit. And what have you done for 13 years, nothing!
What have you relied on to make all your money back?
Nothing, all you need to do is stay alive.
#passiveincome #investing #coveredcalletfs #coveredcalls #calloptions #optionstrading #canadianstocks
Disclaimer:
Not a licensed investment advisor, videos are educational.
“I enjoy every second of those 6 seconds” 😂
Thanks for the video and updates you provide. Today "Feb 23rd 2021", I finished buying my other half of my RRSP portfolio on this down market and based on your previous video "$250,000 Dividend Portfolios RRSP Unveiled | 2000$/Month" and related spreadsheet which I further enhanced for my use. You (and a few others in financial) also inspired me to start my own YT channel and hopefully to share a story on this sometime later as I get proficient with video editing & storytelling. Thank you and keep up the efforts...I now know the work these videos take to keep everything in line. :)
Awesome video man, thanks for the explanation. A good video for you to do I think would be to show what's in your TFSA :)
Bro! you hit the ball out of the park with this one! Will be buying my 1st CC ETFs with my next paycheque!
Adrian, thanks for the content as well as your humour!
Excellent! I discovered covered calls with individual stocks a couple of months ago. Holy Moly! The potential is great! I like doing it myself, BUT, to generate the income I want, covered call ETFs make a lot of sense. Thanks! Liked and subscribed.
Great video bro. I’ve been watching your videos and your info has been great for tightening up my dividend part of the portfolio. You should do a podcast! I’ll be the first guy in line! Thanks again!
I am really thankful I’ve come over your channel, your strategy is exactly what I really love! Thank you.
Thanks for being there. I have learned alot from you, and opened my eyes to dividend investing.
Learned a TON!! AMAZING VIDEO.! finally a vid that explains what options are...
thanks!
Thx for the vid. Have ZWC in my portfolio with ZWB, ZWU, ZWK, and ZWS on my watchlist.
Great video you explained options so well!
So happy to find your channel, life changing, can’t thank you enough, thank you from the bottom of my heart 🙏👍
Thanks! I think I finally kinda get what a call option is!
OK, time to look at some cover call etf's now that there is a pullback and your video has convinced me to look into these investment vehicles. Thanks Adriano👍🇨🇦
The best video I have seen on covered call ETF investing. Thanks for sharing.
Excellent video, it explained so much!
Thank you…This video explains every question I had about covered call ETFs and more…I plan to invest in them in the future!!!!
Great video! Thanks so much man
Thanks man. Been trying to explain this to my dad. Hopefully he can get it from this video!
I will have to do more research, but you have helped so much on giving me a big head start and confidence boost in doing investing.
I hope you get lots of subscribers and lots of website customers.
Thank you!
Great video as always. Thank you! 👍👍👍👍
Quality as always. Thanks!
I bought 2 BMO covered call ETF's a while ago, your explanation reaffirms why! Love your channel!
Which ones did you grab? I’m staring at ZWC a lot
@@dmalinowski15 honestly zwc seems too good to be true I bought like 40 shares
Its good and it’s true 😎
@@dmalinowski15 I hold ZDV and ZWU not sure why I didn't go for ZWC but here are am. In 5 months they are up 5% excluding payouts. I also hold ZCN, in the same time it's up 12%. :)
@@s.m4125 all I can say is good move. :)
I don't know who out there needs to hear this right now but stop doubting yourself. YOU can do it! EdYOUcate yourself and get in the game. Don't let life pass you by and look back with regret! :)
Why is it sooooo hard? Lack of eduction and opportunity to practice. So sad for us all!
Thanks
Lack of education is the big one , why they don’t teach us this stuff in high schools is beyond stupid
@@PassiveIncomeInvesting Appreciate the reply! I totally agree with you, my friend. Have an awesome Friday and weekend! :)
@@cindyjonessherk8985 We only have right now. The best time to plant a tree was 20 years ago, the second best time is now. Good luck and God bless, Cindy! :)
Great job again!!! I really like this channel. I was wondering what would you suggest as a portfolio mix? Covered Calls, Splits, Growth and income.
I discovered Covered Call ETF (as well as Split share ETF) in your previous videos and I love it. I own ZWU, ZWC, and CIC. Once understood, these ETF are as safe as standard ETF. Also, I love their MONTHLY dividend distribution.
Who doesn’t !
@@PassiveIncomeInvesting wondering if you'll ever do a video aimed at the retired investor, don't know if your strategy is or isn't feasible for somebody like myself who is 68 and been retired for several years?
It’s actually best for retirees …
My only concern is nav erosion. If at some times me you ever had to sell say TSLY and you bought it at 18 and it is 10 you do not have as much to buy something else. My approach is to use these as a replacement for bonds.
I keep what I need for monthly income in covered call etf.
Then the other 70% of my portfolio in growth stocks.
Another super helpful video with valuable info! Thank you.
Great explanation. Thank you
As usual another very good video. Indeed options are not obvious to get (nor to explain) but once you get it, you get it.
Thanks for another great video.
Even if you don't intend to sell the stocks, the dividend usually stays the same. Compared to an etf/stock that increases it's dividends you will gain less on the long run. If you need the income in 20 years I think it's better to invest in an etf/stock that increases it's dividends.
Watched and liked, thanks!
Thank you for this video, very informative!
Good one. Need a US version 🙂
Your Every upload makes me feel closer to freedom.
Hi Adrian, thanks so much for your videos, you are doing awesome work and very inspiring.
Thank you Adrian!!
Great explanation, thank you.
Great information on this video.
Keep up the great work.
Awesome video very informative I appreciate the knowledge
U are awesome. I wish you could some how talk some sense into these other u tubers who continue talking against covered calls as a trap or a tax burden or a instant loss the minute you buy it. There are so many of these dudes saying no that it really makes me research more and every time i look at it more I just like it more
thanks. very informative! i have 3 covered call etf in my portfolio. can u do income fund in the future? pros and cons of closed end funds. thx.
I want a cow that milks itself and doesn't have to be fed
That sums up entire discussion!
Love your videos
Great video Adrian. Im with you all the way. My portfolio is 90% covered call etf’s. love the BMO’s
Sleep 💤 well my friend
Loved the video!
"I want to own a cow that milks itself and does not need to be fed" - awesome
Thank you 🙏🏽
TXF has been killing it for me lately, first and only covered call ETF but looking at more
Well it’s technology so of course it’s been killing ! 😎 great way to get income in tech stocks which is tough to do
Hey Adrian! Thanks for another great video ☺️. Thanks to you I have ZWK in my personal account and it's appreciated 30%, not to mention the monthly dividend. I have ZWC and ZWE in my TFSA and on Monday I'm buying ZWU, ZWG, ZWH and ZWB in my new RRSP portfolio now that I'm officially out of mutual funds. Cheers!! Stay safe.
Good job my man ! For the rrsp don’t forget about qyld ! No 15% tax !!!
Hands down best explanation! Keep it up man :)
Can you do a video focusing on best performing US based covered call ETFs?
QYLD
Awesome video.
Really good vedio. love ETFs.
Great video, thanks for this. I'm just retiring, I've done well with my portfolio of individual stock but now looking for more security and reliable income. This video is extremely helpful.
Great time to switch strategy!
verry clear adrian thanks again .i just buy your ultimate passive income ...have a good day buddy
Thanks man let me know what you think ! Please leave a review on my website 🙏
Amazing content as always👍
Outstanding video. Two thumbs up.
Thank for your work on showing how to achieve higher dividend yields. It often seems that these investments trend at, around, or lower over time. Can you share your thoughts on this as a decrease in asset value is a set off to higher yields. Thank you.
Thanks very much for the explanation, I now look at passive investment strategy differently. Roughly what % of your portfolio is covered call etfs?
Love the video dude! I was just wondering do you only invest in Canadian stocks (Im still new to this so just trying to understand)
I learned so much from this video. Thanks Adrian! 😊
Glad to hear thanks 🙏
Thank you. No worries. I have been comverted. Invest for returns, not speculate on increace.
Great video
Great video Adrian - Why then do you not have or offer a product/ portfolio also - based solely on Covered Call ETF's alone etc. ?
Good one.
Bro, Perhaps one day, could you please make a video on how to calculate ACB of stocks? I see that you've included the link in your website but perhaps you could show us your excel spread sheet ( if you have one) in regards to how you manage your ACBs for tax season?
For US viewers, RYLD, XYLD, QYLD, USOI, SLVI, GLDI are a few monthly covered call ETF's.
Thanks for this 👍
Thank you so much! This is exactly what I was looking for.
Slvo 😎
Another great video. I don't need my dividends now so it all goes back into the stocks, creating more dividends :) To be honest, I won't "need" the dividends when I retire too but nice to have even more money to leave to the kids, spend on the grandkids if I have any, or do whatever I wish to with it. For me, dividends are extra padding during retirement. I just wish I knew more about such things earlier in life but never too late to start, plus I've started my kids (pre-teens) on this journey as well. PS - Glad to see those subscribers growing!
Could not agree more
I love your explanations Adrian! you are so easy to understand! You are right, we enjoy the growth and income from the dividends, it is a win-win for everyone. I own QYLD and RYLD for that reason.
This is the first time I see this interesting strategy for the higher dividend. I have a portfolio of Blue Chip companies and have done pretty well over the last 9 years. But is very interesting this new approach. I will research to see if I can invest in equivalent Covered call ETF's here in USA. Thanks for the interesting video. You have a new subscriber her. thumbs up.
Global x has some great covered calls ETF’s like qyld and Ryld
@@PassiveIncomeInvesting Thanks for you quick response. I will research Global x. Take care and wish you all the best.
Excellent video.
One interesting exercise would be to compare an index etf + drip vs covered call etf + drip to see which outpaces which over a given time period.
The index fund will most likely win in the long term ! I admit it . Check out my previous video !😎
@@PassiveIncomeInvesting That's my instinct too but it would be interesting to quantify it it's true and by how much. Wouldn't it be wild to find out it's net neutral or that some variery of a Covered Call ETF ends up beating the index (however slightly).
Probably not by much … keep in mind I still like to think I own the whole stock market to a certain extent . As I own the funds hold the blue chip leaders in their respective sectors
Biglove / very helpful
Great info Adrian and Erica: quick question, if we compare the original version of the etf to its coverd call version the over all return or the total return is more in the original version. For example: ZEB with Zwb or Zbk with Zwk, or zut with zwu or zdv with zwc.. the original versions perform better than the coverd call version. Could you please respond if that is right? Thank you again
My next video explains why I don’t care
learned something new🇨🇦🖖
Good day Adrian - Would collecting these Covered Call ETF's and just dripping them continuously overtime in a continuous cycle have the equivalent effect as if you also invested in growth stocks etc. and much safer obviously in case of crashes etc.
Good stuff
I get it. I want to do it. How do I do it? How are the rrsp and tfsa related? Are they related? What are the steps?
I think what I learned from you videos is:
Split share/ income funds have a high yield, but rarely increase or decrease the dividend. They are at high risk of temporarily pausing the monthly dividend payments if nav is too low. Dividend distribution never changes, so little or no protection against 2-3% economic inflation unless you buy new shares at lower prices and/or do drips.
Some stocks increase dividend regularly but usually have lower yield than split share/income funds and cc etf's. Stocks are at risk of cutting dividends and pausing their yearly dividend increases.
Cover Call Etfs usually pay their dividends, but the amount is unpredictable from month to month with some really high paying months and some that are lower. Total yearly dividend may not increase from year-year and may not outpace 2-3% economic inflation.
Is that mostly correct?
I’m not worried about inflation , do you know long it would take for a dividend stock to raise their dividend enough to reach 8-10> yield ? Decades
What do you mean decades to reach 8-10> yield? If enbridge has a yield of 7.45%, and if they grow their dividend by 10% per year, then next year the yield on original investment will be around 8.19%. then 9.0% the year after.
Can u choose reinvestment instead of distributed option for this?
Hi, do the ETF values maintain while providing the income? Tks
Hey Adrian what do you think of having USOI ETN to portfolio and out of USOI distributions buying SCHD to portfolio
Thanks for the info man you're like one of the few actually speaking about this subject im definitely intrigued and ready to start investing. Hey, by any chance can you recommend some of the best CC ETFs for us in the states. Thanks again .
Thanks man , start with the global x ones , qyld , Ryld , SDIV etc
Good explanations of these Covered Call ETF's. Now that I'm almost retired (in 1 month), I'm using about 8 of these types of ETF's to generate passive & supplemental income during my retirement and that's being working out really well.
Just an idea for another video: with some new Covered Call ETF's out now that are 0DTE (daily options expiration instead of monthly), compare the features of those with what was discussed in this video.
Already done ! Search my newest videos
What about the fact that some funds stop their payouts etc. - when it comes to Covered Call ETF's.
Thank you very much, Adrian! Love all your channels which are the best among others. Seems the covered call etfs are the best choice for passive income investment. Can you tell if it's covered call by its name, or you have to visit its website?
Thanks man ! Usually it’s in the name but not all the Time . The funds website is always best … but in Canada there’s only 6 main providers of cc ETF’s : bmo , ci, harvest , horizons and bronpton
Love going back over the videos. Learn something new every time. Adriano best investor of all times
I appreciate that!
Always GOAT
Sarcasm is awesome!
Great channel love it bro.
I have a question please.
I can't understand how this fund works. Lets say they write covered calls ATM. If the stock is down 10% a month and a day before the option expires, they have to sell it and write a new option for next month. But they write the new option on a very low strike. So if the stock will go back up next month, so a day before the option's expire, they will have to buy the option for a huge premium.. and that is a loss isn't it?
Don’t worry bro they're professionals , they know what they’re doing .
Great video as always! Curious if you could show an example of the degree to which a covered call etf underperforms the regular etf. Eg ZDV grew by 38% the past 5 years and ZWC grew by 27% so you lost 9% of growth but made an extra 15% of income (3% extra yield a year for 5 years).
thanks for another great video!! I was just looking at the covered call etf stocks in your portfolio and was looking into FLI, but nowhere in its factsheet says it is covered call etf... did they change it?
Hey Gordon , no it’s still a cc etf . If click on the insights tab on the funds page , you will see it in that document . The direct link is also on my website under the free tools and resources link . Under ci first asset covered call strategy 😎
@@PassiveIncomeInvesting ahh thanks!
Hi - Awesome video. Question - in a covered call strategy, you can expect around ~8% in cash flow yield but aren't you also gaining from stock price appreciation perhaps not as high as in a regular ETF? Let's say you get ~7% in Capital gains + ~8% in yield you are ultimately receiving ~15% over the long-run.
Is this a correct assessment?
Correct , they have more yield but less growth , perfect for a buy and hold income investor !
How are the distributions handled in a US taxable account?
Thank you so much. I thought calls and outs were more for speculative trading and not for dividend income. I would assume that the ETF fees are much higher as the fund requires much more active management, or not?
Just a bit … why don’t you check lol it’s right there on the funds website
Hi Adrian. Thank you very much for your videos, I’m learning so much with them.
Any idea why E*trade when I look for ZWK or EIT UN to name some, tells me it doesn’t find anything with that symbol?
No idea , it’s a us broker right ? That’s probably why . These stocks are listed on the Canadian exchange not the us exchange
In the US look at NUSI , QYLD and RYLD. Same things for the US
What is a fee like? That the buyer will have to pay?
Thank you for the great explanation, just wondering why you didn't mention stocks that pay over 12%, does the same principal apply? Something like FFN or similar split shares corp?
Split corps also use the covered call strategy but they are in a class of their own . Got separate videos for those !
ZWC and other BMO covered calls have a return of capital which is not healthy as this is a portion of your money coming back to you as the distribution. I would rather get the full dividend and the Cdn divy tax credit.
That’s a myth many people unfortunately still believe ... roc is not necessarily bad . Plus it’s not taxed at all . But hey if you want lower yield with higher taxes because you feel roc is bad , go ahead
i do love trading in the market but 50% of my portfolio is in income-based div strategy, Thank you
Thanks for the great video! I was wondering what would happen to ZWC in the case of a market correction or crash? Would ZWC be a good place to keep my emergency fund or is there still enough risk involved that you would advice against it? thanks again, keep up the great content.
It would follow the Canadian stock market basically , look at the chart. Zpw is better for parking money
@@PassiveIncomeInvesting Thanks so much for reply! Great job :)