Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘ETFs’

Now You Can Sell Puts for Income in the New ETF

One of the recent trends in the income investment newsletters is the concept of writing (selling) puts for income.  You had to know that it would only be a matter of time before an ETF would be launched using this concept.  Investors sell put options to collect the premium income as an option strategy to generate investment income.  It is interesting to have an ETF to do the heavy lifting but prudent investors should monitor this new put writing ETF for positive results before buying shares.

Are you ready to sell puts on Netflix (NFLX), Green Mountain Coffee Roasters (CMCR) or Salesforce (CRM)?   If Yes, then this ETF is for you.  These and other stocks with current put writes is shown below.

ALPS just launched the U.S. Equity High Volatility Put Write Index Fund (HVPW) . The Fund seeks investment results that correspond generally to the performance, before the Fund’s fees and expenses, of an index called the NYSE Arca U.S. Equity High Volatility Put Write Index. The Index reflects the performance of a portfolio of exchange-traded put options on highly volatile stocks.

The ALPS HVPW Fund is designed for investors who seek to obtain income through selling put options, selling 60-day listed put options every 2 months (6 times per year) on 20 stocks. The Fund intends to distribute, at the end of each 60-day period out of net investment income and/or short-term capital gains, an amount of cash equal to 1.5% of the Fund’s net assets at the end of such 60-day period. If the Fund’s net investment income is insufficient to support a 1.5% distribution in any 60-day period, the distribution will be reduced by the amount of the shortfall. Also note while the Fund only intends to make such distributions out of net investment income and/or short-term capital gains, it is possible that in certain circumstances, a portion of a distribution may result in a return of capital (which is a return of the shareholder’s investment in the Fund).

Put options are a type of financial instrument used to provide the owner the right, but not the obligation, to sell the security at a set price, or “strike” price, on or before an expiration date.  Traders who write put options have essentially sold the right to another investor to sell shares at an agreed-upon price. On the other hand, the buyer has the purchased the chance to sell stock to the put writer.

HVPW offers diversification by holding a portfolio of 20 names rolling every 2 months (i.e.120 puts per year).  This is one advantage to the ETF investor who doesn’t have the time or resources to diversify across multiple investments.

At the end of the two month period following expiration of the options the index is decreased by 1.5% to represent the 60 day period distribution, then the new set of 20 stocks are chosen for the new period’s option positions.

 

Here is a list of the initial 20 stocks with put writes:  HPQ ALXN, TRIP, CRM, NU, CTRX, ONXX, NVDA, DISH, MGM, BBY, MNST, CHK, GMCR, NTAP, CIE, NFLX, SHLD, VRTX, STZ

 

HPQ US 04/20/13 P14 -0.01%
ALXN US 04/20/13 P70 -0.01%
TRIP US 04/20/13 P37 -0.02%
CRM US 04/20/13 P150 -0.02%
NU US 04/20/13 P35 -0.02%
CTRX US 04/20/13 P45 -0.04%
ONXX US 04/20/13 P65 -0.04%
NVDA US 04/20/13 P11 -0.04%
DISH US 04/20/13 P31 -0.07%
MGM US 04/20/13 P11 -0.08%
BBY US 04/20/13 P15 -0.08%
MNST US 04/20/13 P42.5 -0.09%
CHK US 04/20/13 P17 -0.09%
GMCR US 04/20/13 P39 -0.10%
NTAP US 04/20/13 P31 -0.11%
CIE US 04/20/13 P22.5 -0.17%
NFLX US 04/20/13 P165 -0.19%
SHLD US 04/20/13 P41 -0.21%
VRTX US 04/20/13 P40 -0.21%
STZ US 04/20/13 P37.5 -0.26%

Monthly Income from a Covered Call Closed-End Fund

For monthly income investors, the BlackRock Enhanced Capital and Income CEF (CII) offers an investment option for both growth and income.  CII trades at a 10% discount to its NAV.  The dividend yield is 11.47% which is inline with other CEFs in this category.  CII’s previous closing price was $12.59 and has a superior rating by Morningstar.

The fund invests in large-cap value stocks and includes a call option writing overlay (on individual holdings and the S&P 500 Index). Individual holdings are picked based on strong competitive performance, a good balance sheet, excess cash flow, low debt payments, and management with proven ability to effectively manage though various market cycles. Stocks must meet multiple valuation criteria, including low price earnings ratio, low price/book ratio, high dividend yield, and high return on equity. Analysts and managers like companies that are currently out of favor and that they believe have future growth potential.

Over the latest three-year annualized period, the fund gained more than 4%, beating the the S&P 500 Value Index, which lost 2%.  During the first year and a half using the new strategy (the second half of 2007 and 2008), the fund struggled and underperformed the peer group and the index, but performance improved markedly in 2009 as the new management team took over. Strong performance continues:  The fund is up 7% over the past year and down 1.7% for the year to date while peers are up 2.5% over the past year and down 4.6% for the year to date.

Following June’s distribution reduction, the 11% distribution rate is on par with peers. The fund has used destructive return of capital in two of its seven fiscal years: In 2008, almost half was from destructive return of capital, but in 2010, it was less than 10%. The recent 25% reduction is a positive sign, but investors should question whether an equity strategy can earn 11% in this market. If the call strategy is successful and stock picks continue to be profitable, it’s possible.    The fund offers a standard distribution reinvestment program. If the fund is trading at a premium (including brokerage commissions), then the dividend amount is invested in to newly issued shares.

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New Additions to Weekly Options

There are 10 new stocks added to weekly options: EFA, FXI, SDS, TLT, EBAY, HAL, KO, ORCL, PBR, and SINA.

LIST OF AVAILABLE WEEKLYS OPTIONS (last updated July 13, 2011) – official  
NOM adding 10 new weekly classes (see highlighted entries below)    
Ticker Symbol Name Product Type

List Date

Expire Date

OEX S&P 100 Index (American style) Index, pm-settled, cash

20110714

20110722

XEO S&P 100 Index (European style) Index, pm-settled, cash

20110714

20110722

SPX* S&P 500 Index Index, pm-settled, cash*

20110714

20110722

DJX Dow Jones Industrial Average Index, am-settled, cash

20110714

20110722

NDX Nasdaq-100 Index Index, am-settled, cash

20110714

20110722

RUT Russell 2000 Index Index, am-settled, cash

20110714

20110722

EEM iShares MSCI Emerging Markets Index ETF

20110714

20110722

EFA iShares MSCI EAFE Index fund ETF

20110714

20110722

EWZ iShares Brazil Index ETF ETF

20110714

20110722

FAS Direxionshares Daily Financial Bull 3X Shares ETF

20110714

20110722

FAZ Direxionshares Daily Financial Bear 3X Shares ETF

20110714

20110722

FXI iShares FTSE China 25 Index Fund ETF

20110714

20110722

GLD SPDR Gold Trust ETF

20110714

20110722

GDX Market Vectors Gold Miner ETF ETF

20110714

20110722

IWM iShares Russell 2000 Index Fund ETF

20110714

20110722

QQQ Power Shares QQQ Trust ETF

20110714

20110722

SDS Proshares Ultra Short S&P 500 ETF

20110714

20110722

SPY S&P 500 Depository Receipts ETF

20110714

20110722

SLV iShares Silver Trust ETF

20110714

20110722

TBT Proshares Ultrashort Lehman 20+ Yr. Treasury ETF

20110714

20110722

TLT iShares Trust Barclays 20+ Yr. Treasury Bond Fd. ETF

20110714

20110722

TZA Direxion Daily Small Cap Bear 3X Shares ETF

20110714

20110722

USO United States Oil Fund ETF

20110714

20110722

UNG United States Natural Gas Fund ETF

20110714

20110722

VXX iPath S&P 500 VIX Short-Term FT ETF

20110714

20110722

XLE Energy Sector SPDR ETF

20110714

20110722

XLF Financial Select Sector SPDR ETF

20110714

20110722

AAPL Apple Corporation Equity

20110714

20110722

AIG American International Group Equity

20110714

20110722

AMZN Amazon.com Inc Equity

20110714

20110722

AXP American Express Company Equity

20110714

20110722

BAC Bank of America Corp Equity

20110714

20110722

BIDU Baidu Inc. Equity

20110714

20110722

BP British Petroleum Equity

20110714

20110722

C Citigroup Equity

20110714

20110722

CAT Caterpillar Inc. Equity

20110714

20110722

CSCO Cisco SystemsInc. Equity

20110714

20110722

EBAY Ebay Incorporated Equity

20110714

20110722

EP El Paso Corp. Equity

20110714

20110722

F Ford Motor Company Equity

20110714

20110722

FCX Freeport McMoran Copper CL B Equity

20110714

20110722

FFIV FS Networks, Inc. Equity

20110714

20110722

GE General Electric Company Equity

20110714

20110722

GM General Motors Company Equity

20110714

20110722

GOOG Google Inc Equity

20110714

20110722

GS Goldman Sachs Group, Inc. Equity

20110714

20110722

HAL Halliburton Company Equity

20110714

20110722

IBM International Business Machines Equity

20110714

20110722

INTC Intel Corporation Equity

20110714

20110722

JPM J. P. Morgan Chase & Company Equity

20110714

20110722

KO Coca Cola company Equity

20110714

20110722

LVS Las Vegas Sands Corp. Equity

20110714

20110722

MCP Molycorp, Inc. Equity

20110714

20110722

MSFT Microsoft Corporation Equity

20110714

20110722

NFLX NetFlix Inc. Equity

20110714

20110722

NVDA Nvidia Corp. Equity

20110714

20110722

ORCL Oracle Corporation Equity

21000714

20110722

PBR Petroleo Brasileiro SA Petrobas Equity

20110714

20110722

PCLN Priceline.com Inc. (new) Equity

20110714

20110722

PCX Patriot Coal Corp. Equity

20110714

20110722

PFE Pfizer Inc. Equity

20110714

20110722

POT Potash Corp Saskatchewan Equity

20110714

20110722

RIMM Research in Motion Limited Equity

20110714

20110722

SINA Sina Corporation Equity

20110714

20110722

SLW Silver Wheaton Corp. Equity

20110714

20110722

SPRD Spreadtrum Communications Inc. Equity

20110714

20110722

SU Suncor Energy Inc. Equity

20110714

20110722

T AT&T Inc. Equity

20110714

20110722

V Visa, Inc. Equity

20110714

20110722

WFC Wells Fargo & Co. Equity

20110714

20110722

X United States Steel Corp. Equity

20110714

20110722

XOM Exxon Mobil Corp Equity

20110714

20110722

YHOO Yahoo Inc Equity

20110714

20110722

* With the commencement of trading in PM-Settled Week-End SPX options beginning December 2, 2010, CBOE will discontinue
   the listing of AM-settled SPX Weeklys options (with the last SPX Weeklys expiration on December 3, 2010)

5 Closed-End Funds (ETFs) for Monthly Income

Yesterday, we discussed the Blueprint for Monthly Income about some rules to use for selecting monthly payers.  Today, we will look at 5 ETFs that pay monthly dividends.  These ETFs include various sectors and potential tax advantages.  You should review the ETFs before you commit to investing to make sure they are suitable to your income goal.  For example, there is little advantage to add a muni bond ETF to an IRA account.  The best posibility with these ETFs is to compound all or part of the income to create a growing income stream.  The five to watch include:

AGIC Convertible & Income: (NCV) – The Fund seeks total return with capital appreciation and high current income through investment in convertible and non convertible income producing securities. 

Price: $10.72

NAV: $9.50

Yield: 10.07%

                                                                                                                                                                                                                   Wells Fargo Adv Inc Opp: (EAD) – The Fund seeks current income and capital appreciation through investment in below investment grade debt securities, loans and preferred stocks.

Price: $10.55

NAV: $10.06

Yield: 9.67%

Helios Advantage Income: (HAV) – The Fund seeks high current income with capital appreciation through investment in non investment grade debt securities.

Price: $7.90

NAV: $8.50

Yield: 9.01%

Invesco Insured Muni Income: (IIM) – The Fund seeks current income exempt from Federal income tax through investment in insured investment grade municipal bonds.

Price: $14.29

NAV: $14.69

Yield: 6.13%

Reaves Utility Income: (UTG) – The Fund seeks high current income with capital appreciation through investment in domestic and foreign utility companies and various money market instruments. 

Price: $24.62

NAV: $24.29

Yield: 6.09%

How to Invest for Monthly Dividends

This is the first in a series of articles based on types of vehicles that pay monthly dividends.

Many people have the desire to increase their monthly income which leads to various activities to accomplish this objective. They may work extra hours at their job, start a side business or stuff envelopes for a few extra dollars. These tasks are all legitimate ways to make more money. But most are not aware of the simple way to increase monthly income by getting monthly dividend checks.

Truth is that many people don’t realize that this is a great time to invest in dividend securities. Yes, the market was scary throughout 2008 and 2009 as the markets tanked and the economy sunk into a recession. Unemployment reached double digits in many areas across the United States. During volatile times, investors watch as their growth and technology stocks get hammered until they reach new lows in price. However, the best time to invest is when there are signs of an improving economy. This is what has happen over the last six to 12 months as the markets started trending up and stock prices reached new 52-week highs.

So why would you invest when the market has already started to recover? During the economic meltdown lead by the imploding debt crisis, companies started to batten down the hatches by conserving their cash. During the last few quarters, companies in the S&P 500 had more cash and current assets on their balance sheet than in the last decade. There are several things companies can do with this cash. But the one that is of interest to us is companies using the cash to increase dividends. Therefore, if you purchase stock in a stable company, there is a better than average chance that the dividend will increase in the future.

This increase in dividends will be a positive for many investments that pay monthly dividends. The result being that your dividend yield on cost increasing over the next few years. Generally, when dividends increase the share price will follow. the investor will have more income from the dividend increase and potential for a capital gain if share prices increase. This is the reason why now is a good time for dividend investing.

How do you invest for monthly income? Today, there are several investment vehicles designed to pay monthly dividends. These include closed-end ETFs, business development companies, royalty trusts, REITs and even high-yield corporate bonds. As we progress through this series, each of these investments will be examined in greater detail with specific company names that are potential investments paying dividends of 10% of more. Yes, some of these investments pay at or above 15% yields today.

We will start with closed-end ETFs in the next article.

Learn more about investing for monthly income here.

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