Covered-call exchange-traded funds have gained popularity among investors seeking high yields, with some reaching 10% or more. These funds invest in stocks and then sell call options on all or a portion of the portfolio, providing income to investors based on the option’s premium. While this strategy can be lucrative in a flat or down market, it may cap upside potential during a market rally.
At Extreme Investor Network, we believe that understanding the underlying securities and strategy of covered-call ETFs is crucial for investors. For example, investors should consider whether they want exposure to large-cap, small-cap, or international stocks within the fund. Additionally, the type of call options used by fund managers will impact the potential for upside and call premium.
When choosing a covered-call ETF, it’s important to evaluate the fund’s expenses and tax implications. High fees can erode returns over time, so selecting a fund with a low expense ratio is essential for long-term investors. Tax treatment can also vary among different funds, affecting overall returns.
To help investors navigate the world of covered-call ETFs, we recommend examining track records and comparing different alternatives. Consulting with a tax professional can also provide clarity on the tax implications of these funds. Ultimately, investors should consider whether adding a covered-call ETF to their portfolio aligns with their investment goals and risk tolerance.
At Extreme Investor Network, we provide valuable insights and expert advice on investing strategies like covered-call ETFs. Stay informed and make educated investment decisions with our exclusive content.