FTHI relies on a universe of large-cap stocks paying high dividends to underlie its call writing and rewards its investors with an attractive total return and dividend yield. Simply put, M-squared estimates what the fund would return if it took on the same level of risk as its SPY benchmark.
This affords more equity upside. Another metric of downside risk, Value at Risk VaRtypifies the expected loss within a given timeframe. Essentially, VaR depicts a worst-case scenario. PUTX also pursues a put-write strategy, but was only launched inmaking it too young to include in our two-year study.
HVPW selectively sells out-of-the-money puts on high-volatility large-cap stocks, aiming to maximize income. HVPW succeeds on that front.
The cost for this is higher risk, reflected in all three metrics: HSPXpursues a more aggressive call-writing strategy. A fund  that writes puts rather than calls is a standout, but not in a good way. Click to Enlarge First Trust Advisors runs two actively managed buy-write portfolios, one geared to maximize income, the other designed to minimize volatility.
QYLD buys the stocks populating the Nasdaq Index, a compendium of the largest nonfinancial issues listed on the Nasdaq marketplace. Despite the risk disparity, both funds earned the same M-squared return over the past two years.
Most of the funds, too, mute market volatility, providing higher risk-adjusted returns. If, however, an investor or advisor believes stocks are poised for another sustained upward surge, less costly and mechanically simpler exposures are more suitable. Typically, these are call options.
The premium earned for selling the options is retained if the contracts remain unexercised—a likely occurrence in a flat-to-bearish market. A number of exchange traded funds engage exclusively in buy-writes.
VEGAis even more expansive. So what about income?
Most use call options. One other ETF requires special attention.
If the Buy write etf value of the stock spikes, pushing the options into the money, shares may be called away at the strike price, leaving the writer with just the premium and perhaps a bit more. The object of the strategy is income production. Chart 1 depicts the day-to-day performance of the buy-writes versus the SPY benchmark.
Its dividend yield is high, but volatility torpedoes the fund on a total return basis. A couple, though, feature puts. Investors looking for high levels of current income and hedged exposure to the equity market might very well find call writing funds attractive alternatives in a flat-to-slightly bearish market.
Should the value of the underlying stock decline instead, the call premium provides a modicum of downside protection. Put writing, though, has been a vexation. PBP would have earned 3.
Click to Enlarge The Bottom Line Call-writing funds more often than not compensate for their relatively low returns with high dividends, making up for losses incurred over the past two years. SPYa proxy for the blue chip index. The fund, however, writes more calls than PBP—up to percent of each stock position.
Brad Zigler Apr 25, Equity markets stalled in after a relentless six-year rise from the depths of the Great Recession. The put premiums create a drag on performance, reducing both total return and dividend yield, but pay off with lower drawdowns and VaR compared to FTHI.
Drawdowns represent peak-to-trough losses sustained before new price peaks are attained see Table 1. HSPX sells out-of-the-money options, which, all else equal, typically produce less income.
The risk metrics of the QYLD fund show the benefit derived from call writing.Buy Write ETFs. More. The AdvisorShares STAR Global Buy-Write ETF (VEGA) is the newest buy-write fund to hit the marketplace; it was launched back in September of The fund is actively.
Utilize a Buy-Write ETF to Generate Yield in a Flat Market By Tom Lydon August 17, In a sideways trending stock market, investors may do well with a buy-write strategy, capitalizing on the.
BuyWrite ETF List BuyWrite ETFs invest by utilizing the covered call strategy. These funds are attractive to investors who want some aggressive exposure but don’t want to. Buy-Write Strategy in Focus A buy-write is an option strategy that involves buying a stock or a basket of stocks and then selling or writing call options on those same assets.
The Invesco S&P Buy-Write ETF (NYSEArca: PBP) eponymously incorporates a buy-write strategy that tracks the CBOE S&P BuyWrite IndexSM.
Exchange-Traded Funds» Financial Products» Exchange-Traded Funds» Product Detail. Home. Products. Pencil in a conversation about CollegeBound Learn More; The Index is a total return benchmark index that is designed to track the performance .Download