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Posts Tagged ‘ETF covered call’

High Yield ETFs for the Income Investor

Exchange traded funds (ETFs) outperformed the fund universe in 2011 and will likely continue the trend in 2012.  Investors are looking for safety and yield, and dividend ETFs offer a low-cost, transparent way to invest in a basket of companies and mitigate single-stock risks.  The following screen looked at performance, dividend yield, expense ratio and analyst recommendations.  All of these ETFs are rated a buy or hold by Ned Davis Research.  The list has some interesting ETFs such as:

POWERSHARES S&P 500 BUYWRITE PORTFOLIO (PBP) – seeks investment results that generally correspond (before fees and expenses) to the price and yield of the CBOE S&P 500 BuyWrite Index. The fund normally invests at least 80% of total assets in common stocks of the 500 companies included in the S&P 500® Index and writes (sells) call options thereon.  PBP was recently upgraded by Ned Davis Research on January 6 2012.  PBP has a high yield of 10.16% which must be in the top range of ETFs.

POWERSHARES CEF INCOME COMPOSITE PORTFOLIO (PCEF) – seeks income by being a “fund of funds” by investing in 124 different closed-end funds in various types and strategies.  This is a nice offering for investors wanting to diversify across a significant amount of CEFs without the single-CEF risk.  PCEF price performance has improved over the last 13 weeks but this is an ETF for dividends as it provides a dividend yield of 8.27%.  Top CEF holdings include: EXG, ACG, ETY, EVV, FAX, JQC, ETW, BBN, NFJ and ETJ.

SPDR BARCLAYS HIGH YIELD BOND ETF (JNK) and ISHARES IBOXX $ HIGH YIELD CORPORATE BOND (HYG) provide fixed income ETFs with high yields.  For exposure to preferred stock dividends look at these ETFs: POWERSHARES FINANCIAL PREFERRED PORTFOLIO (PGF); SPDR WELLS FARGO PREFERRED STOCK ETF (PSK; ISHARES S&P US PREFERRED STOCK INDEX (PFF); POWERSHARES PREFERRED PORTFOLIO (PGX).

Here is the list of ETFs passing the screen for high yield ETFs:

List of high yield ETFs for 2012 prepared by getrichinvestments.com

Click to enlarge

Covered Call Trade on Gold

Closing out yesterday, stocks were soundly beaten amid growing fears of a global recession, as investors confronted a grim mix of U.S. economic data and fresh concerns about Europe’s banks.  In the flight to safety, investors piled into gold, which jumped to a new record of nearly $1,830 a troy ounce.  If you believe the trend in gold will be mainatined due to market uncertainty, why not look at gold for a covered call.  Why use a covered call when rather than go long gold?  The simple rationale is that gold has had a nice runup over the last few weeks and if the market views turn positive, then some of that money will come back into stocks and gold retraces or pulls back from current prices.  With this thought in mind, you may want to sell an in-the-money call to add some downside pretection.

The covered call can be placed on the gold ETF (GLD) which was upgraded by Ned Davis Research from 4 stars to 5 stars this week.  If you want to be more aggressive, you can do a covered call on the gold mimers ETF (GDX) with an in-the-money call.  The chart below shows the assigned returns at various strike prices for GLD and GDX.

Covered call trades on gold and gold miners

Click to enlarge

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