The #1 RISK of Covered Call ETFs…
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00:00 Intro
00:55 #1 Risk
01:34 What is Risk?
05:15 My Conviction
06:00 Risk of Covered Call ETFs (IMO)
08:56 BETA Score
10:52 Real Examples
15:04 How I see it...
17:00 Summary
MISSION:
Help everyday people to invest on their own, in order to create their own source of Passive Income to enhance their quality of life and reach Financial Independence
GOALS of this Channel:
1) To share my Personal Investing Journey & Strategy with the world. Everybody needs to make their own investing decisions. I am NOT against any style of investing and I will NEVER claim my Investing strategy is the “best”; its the best FOR ME
2) Educate you about Income Oriented Investing with a particular focus on Covered Call ETFs listed on the Canadian & U.S. Stock Markets
DISCLAIMER:
The videos and opinions on this channel are for informational and educational purposes only and do not constitute investment advice. Adriano Starinieri is not registered to provide investment advice and as such does not provide recommendations - those looking for investment advice should seek out a registered professional. Adriano is not responsible for investment actions taken by viewers.
#passiveincome #investing #dividendincome #financialfreedom #livingoffdividends #covered call #high yield #income
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I'm happy with the "risk" of covered calls. I'm happy to give up some upside potential for the ongoing cashflow. A side benefit of being paid regularly is I won't sell to make cashflow. It also helps me stay the course when the market fluctuates in value.
Adriano, it would be amazing if you could do a video possibly called. Best bang for your buck dividend ETFs in the 7-9% range 10-14%, >15% etc.
I like this idea
in what sense? returns? yield? fees? diversification? all of the above?
@@PassiveIncomeInvesting In this order of importance? 1) yield or monthly income 2) diversification 3) performance, diff people have diff scenario and we now have many CC+Lev ETFs to choose from.
Yield would be great.
@@PassiveIncomeInvestingall of the above. Most of your viewers, and I guarantee this - will prefer an income ETF that pays a consistent 8% yield, with some growth opportunities, as opposed to a very volatile gimmicky etf that pays 40% but the price drops 50% in a year.
How about "the best most balanced income ETF that pays a sustainable substantial yield of 8% but also does not cap upside"
Amen - risk is probably one of the most misunderstood things in investing. I believe that low-risk is inverse to opportunity. Having a low risk tolerance comes with a high opportunity cost.
Example - money in a "high interest" savings account or GIC may have low risk but you have lost the opportunity of higher income or returns using the money in something else. ( And that is without even considering inflation and currency devaluation).
I used to be very risk averse but it actually lost me more money than with higher "risk" investments like CC ETFs. Instead of trying to avoid risk - I try to counter balance it through diversity and non correlated assets to give a couple of examples. Like they say - no risk = no reward!
exactly why i think the word "risk" is very subjective and can mean different things for different people. well said
I really like the income investing you do as I have always hated trying to time when to sell to get a return, and then when you do sell you lose those shares which in an income fund would be giving you the income while retaining those shares. So I basically just get my monthly returns then look at if any of my stocks are lower then my average and then I put more money into that or those ones and just repeat that. I got into BTCY and ETHY at like $2.50ish I only wish I had more money to invest then as they are up 122% on BTCY and 80% on ETHY so those gave me a nice bump in my TFSA worth :) But even my HYLD is up 9% as well so growth and income I am really enjoying this style investing much more
glad its working for you
Thanks Adrian. As always, really appreciate your perspectives.
Big thank you for this video and really pulling that apart down to basics and explaining it-because it’s not obvious to many of us. I am learning so much. They sure don’t teach financial stuff at school. Definitely gives us the edge!
Glad it was helpful!
Thank you for sharing all of your valuable time, knowledge and expertise! I’ve learned so much from your videos!
I'm so glad!
Absolutely FANTASTIC video!!!!!
Thanks Adriano! Very well explained..
It’s great to have the option of mixing in CC etf & regular ones .. 🙏🏻
I have the same poster you have in the back. Money never sleeps! Let’s keep teaching our family when it comes to becoming rich and managing investments
great video, always learn so much from you videos, thank you
Excellent as always! Thank you for the great content!
Great video Adrian! This was helpful!
Nice video about risks! 👍 You forgot to mention the biggest risk is that once anyone became a PII, market fluctuations no longer affect them and their investment life will become so boring, they will just focus more on their personal life instead. One can't retire with a $1 Million dollar growth portfolio, but anyone can achieve F.I.R.E with an income generating portfolio and less dollar amount. In the end, everyone needs income, so why not start at the beginning. 😁
hahahaha good job buddy!
Truly an incredible wealth of knowledge! ⭐️ Thank you kindly - for helping us amateurs with a avenue to improve and learn about investing!
If you look at funds like EIT or even dividend stocks like banks they gained a great deal over several years if you reinvested the dividends. I'd say lower upside could be the greatest risk but if the market isn't going up you won't get much growth anyway.
sure you will . the income is part of the return of the fund. "growth" is also subjective i guess...
Hi, I am interested by the risk of my portfolio, not just single etf. I measure how much I can afford to loose, then I adjust the portfolio in consequence! Actually you can lower the risk of the complete portfolio by adding a more risky etf! I use to calculate the standard deviation, the value at risk and the conditional value at risk to give me an idea of where my portfolio is going. I try not to exceed my tolerance to risk! 😬
Great video. Thanks !
Helpful video. Could you say how much of a risk is it might be if an ETF provider (e.g. Kurv) goes bankrupt? Thanks.
zero
Thanks Adrian 👍
Always wanted to know this thanks man your da best teacher
What I would like to see is this: given two pools of funds worth $1000 each - invest $1000 in a regular ETF, the other $1000 in covered call ETF (preferably two funds are analogous in investment market and under the same company), and all dividends are reinvested into the funds, what the results would look like after 1 year, 2 years, etc. between these two investments.
He's covered this a lot in many videos. A CC ETF will outperform during sideways and bear markets, but as we know, the market has a tendency to go up more than it goes down. Most CC ETFs give up some of the upside if the underlying goes up too fast and hits the strike price (some sell "at the money" calls and give up ALL of the upside for income), forcing them to sell. Couple this with the higher management fees (because it takes more work to trade options actively) and over a long period of time (especially in a long bull market) the CC ETFs will almost always underperform the underlying. The reason why we buy CC ETFs is not for total return. It is for peace of mind knowing that we can hold onto the ETFs forever and live off the income (or choose where to DCA it into) without having to worry about market conditions and deciding when to sell etc.
Hi Adrian, I have a question. February was the first month that I invested in QQQY. According to Fidelity (I'm in the U.S. so I am limited to U.S. stocks), QQQY gained .80 per share which is great (invested on February 9, 2024). Unfortunately, the share price went down 0.60. Therefore, instead of receiving 0.80 per share, I received the difference of 0.80 - 0.60 = 0.20. That's a big difference. I am curious about 2 things. Why is an ETF which did 0.80 per share in dividends going down in price? That makes no sense to me. Secondly, I am confused as to why you say you are not concerned about the share price when in my case, the dividend went from $4,800.00
to $1200,00. That's a big difference. I'd appreciate any help regarding thsi matter.
The ETF share price will go down by the dividend amount on the ex-date. All ETF do this. its just way more noticeable because the dividend is huge. If you DRIP QQQY you will a big jump in your investment value on the pay day. all that matters is your investments value in the end.
Hey Adrian, i am a new subscriber…I know you have done a video on IWMY…what are your thoughts on that?
THIS was a master class on risk!!
It's a bit exasperating to witness people in the community gloss over valuable advice and dive headfirst into investments without fully grasping the implications. Then, when things inevitably veer off course, they're left scratching their heads in frustration. Taking the time to heed advice and conduct thorough research beforehand can save us from unnecessary headaches down the road. It's all about making informed decisions and setting ourselves up for success in the long run.
Hello tks for the insight. Can you clarify when you said if ETDs are on the upside they don't perform as well. Does that mean you actually get less dividend? Tks :)
No, distributions (yield) is not the same as the growth of the underlying stocks (total return). The distribution amount comes from the dividends that the underlying stocks pay plus the premiums that the covered calls bring into the fund.
When a stock grows too fast, some of the shares are lost which means that the fund owns fewer shares that grow and pay dividends. The limit of the upside stems from the fewer shares owned to grow.
The loss of dividends may be completely offset by the covered call premiums collected. If not, the distribution amount may be reduced. That's why spikes in the price of stocks is not good for covered call funds. Slow appreciation is much better.
they underpeform the indexes because by doing covered calls (ITM Puts) you give up upside for yield. dividends are based on volatility. see my Q&A with Jay
@dkyrtata6688 thank you very much! :)
Thank you Adrian for clarifying (Risk) But - Perhaps the income becomes less volatile by owning the actual ownership of bank shares - because Canadian banks haven’t cut their dividends… going on close to 200 yrs - plus - an additional benefit is cashing in on the Canadian dividend tax credit at tax time… / just my thoughts 😊
Although I also own a couple of Hamiltons funds..as well..
Yes bank stocks are solid but they can cut dividends . You never know … and it’s only 1 sector . The tax efficiency you mentioned is non existent in any registered account . It only applies to the cash account . Also , in higher tax brackets capital gains is more tax efficient than eligible dividends
Thanks
What would happen to your CC ETFS if say Hamilton or Harvest or YIELDMAX or Definance go bankrupted due to a big scandal ? JPM probably has way more business controls than say those way smaller ETF operators. Could you please do a video on who is the custodian of their covered calls? Thx so much! Ex. States street is the stock custodian for vanguard…that is good cuz they are two separate entities. I’m sure these smaller ETF operators Al have to follow SEC guidelines.
In Canada and the US, any fund manager have to hire a independent custodian to keep the funds separate from the management. If Hamilton or Harvests ETF bankrupt, you’ll be refund the NAV of your portfolio if I’m right.
Good point. I'd be interested in this as well.
a big scandal? lol . nothing will happen, don't worry its all regulated strictly. if the ETF closes, the NAV is returned to the investor
@@PassiveIncomeInvesting good to know
Ciao Adrian, Covered Call ETF sell call options ITM or OTM ?
I have TLTW, JEPI and JEPQ
Depends on the fund !
Biggest mistake I find is mismanagement on CC’s when they go ITM at expiration. You got loads and loads of options and I personally find it GOOD when my CC goes ITM because that means my underlying is going higher and I can just roll out my CC to a higher strike with more time and keep earning.
Can you explain further re ITM vs OTM from a risk / return perspective?
Looking for ETFs that gives good income that go up or stay the same . I have ZWU that is trending down continuously
I think the number one risk to covered call ETF’s is sudden market crashes. You will take the full downside in such an event, (and actually 1.25 times in your case with a lot of your leveraged ETF’s) but when huge recovery happens afterwards, you don’t get to participate fully and your total return really drags because of that. I’m talking very short term crashes like covid 2020 here. Not prolonged ones like in 2022.
The same applies to index funds . Covered call ETFs cushion the downside with call premiums
@@PassiveIncomeInvesting Not in a short term market crash. 1 month of covered call writing option premiums will not cushion the fall or compensate what you will forgo in the recovery. Index funds without covered calls will participate in a full recovery after the crash, while covered call funds will take much longer to recover historically in total return.
Question how much less risk using covered call ETFs vs writing the covered calls yourself?
@@photoexplore1 actually I think the covered call ETFs have less risk because you don't have to figure out the strike price. I guess you possibly earn less money having someone else do it for you
Another great vid from Adrian…looking to add my first TSX listed CC ETF to my growth oriented RRSP…any advice for my first buy? Thanks 🙏
ETSX, ESPX, CNCC, USCC
But if covered call ETFs limit growth to provide higher income than growth ETFs, why would you buy a covered call ETF for a growth oriented RRSP. Are you planning to retire soon and have your RRSP provide you income?
Good video Adriano !! 👌👌
yeah , hurry up! lol
It would be great if you can do a video of best CC index ETFs that don’t chip away at NAV. IE only write OTM CCs or not write on entire portfolio
its coming
Awesome video dude! Ever think of doing one about what will happen when the world moves away from the US petro dollar and how it will affect our cc etfs?
No because I don’t think about that
@PassiveIncomeInvesting Thanks! Guess I worry too much.
Adrain, I'm about 6 years from retirement and slowly DCA into cover call ETFs, slowly positioning myself to transfer my growth ETFs into these for monthly income.
Interesting, as I may also be in that range from « retiring » (if I ever retire but to have income needed) maybe DCA of the lower Canadian market would be a option to consider for part of my growth portfolio 🤔🤔
Risk is our business.
~ Capt. James T. Kirk
My favorite part about PIV is not having to worry on when to sell
me 2
Love your video ❤ Thank you Adriano🫡🫡🫡 Learnt something new today.
My pleasure!
Would you consider Covered Call ETF’s safer approach for passive income investors?
YTSL is slightly less risky than tesla then, great!
i would say almost identical due to the 25% leverage but still lower risk as time goes on with every dividend you collect . time = your friend as a Income Investor
I personally think QQQY and JEPY are going to lose a lot of NAV long term. I have adjusted my positions accordingly.
how are they losing NAV if they are paying it out to investors?
Idea for a future video - Adriano - have you done a comparison for the last 10 years ? Your strategy vs S&P 500 index ? Actual returns including dividends ? I’m curious because research shows 85-90% of money managers can not beat the index over time ?
it will under perform. no need for a video on it. i discuss it in the last few vids
@@PassiveIncomeInvesting what will underperform?
All risk cannot be mitigated, the unknown is always present. I believe 90% can be manipulated by the investor, 10% unknown; maybe 15-85% in severe volatile periods. Just an observation.
sounds about right
Do you know of a covered call T-Bill ETF, is there such thing?
th-cam.com/video/KZ6vaY3rqtg/w-d-xo.html
I have seen those 2, however, they are not T-Bill they are long term bonds. Thanks for the reply.@@PassiveIncomeInvesting
Why the ZWK etf when down in 2023?
whats inside ZWK?
@@PassiveIncomeInvesting it’s a BMO Covered Call US Banks ETF
Adriano you're videos are usually quite good, this one was exceptional. A great explanation of risk pertaining to different investments. Always so educational.
Can you update qqqy? It's eroding fast
no its not
@PassiveIncomeInvesting guess my excel spreadsheet is broken then.
im buying covered call funds even with a long timeframe because dopamine keeps me investing
I like long term funds. For retirement. Hold for ever passive income
Risk of lo$e: "to have less money than before; to misplace money"
Covercall ETF,s. Is great risk in my opinion
? great risk?
@@PassiveIncomeInvesting the risk is minimal. Because of the up side. And the funds are active manage. Hamilton. And harvest. So I’m cool with these funds. I own lots of the Sam funds as your self Adriano
try to define risk without using the word risk
Volatility
@@PassiveIncomeInvesting yes...thats it.
Gotta stop using the word "scientifically" incorrectly. Use "historically" or "mathematically" or "in reality" when you mean those things.
Could of saved the 21min video and just said. "delta risk".
And what percent of the viewers do you think understand what delta risk is?
lol
Hire someone to scrape these websites. Rehearse your videos 😂
Yes mommy
I have a friend who is now 76 years old was a banker all his life. He holds $80,000 dollars in EIT.un for over 20 yrs. Very happy