Quote:
Originally Posted by TorqueDog
Yeah, covered call ETF. Since about mid-2022 ENCC has traded in a range between $10.10 lows and $12.80 highs, so hitting it at $11 a share with a very small portion of my portfolio is acceptable risk to me. My other stuff is MSFT shares through work and some Vanguard stuff from Canadian Couch Potato.
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Yeah, I mean there's a place for those things and it's obviously up to each investor what they want to do. But in the interest of accuracy, I don't think it's correct to characterize it as something you can just buy, collect the premium, and not worry about the direction of the market. There's a reason why Global X lists it as a high risk ETF while their index funds are medium risk.
The premiums from selling calls can help in a sideways market, but in the long run, those things usually perform poorly and they really don't have the downside protection that you'd think. I mean, look at ENCC's historical chart; from its inception in 2011 to the end of 2019 (so excluding COVID), its value dropped by about 85%. And even after accounting for the distributions, $10K invested at the start was only worth about $3.5K by the end of 2019. Whereas $10K invested in a CAD S&P 500 ETF in 2011 would've been worth about $30K by 2019.
They can be OK if you really need monthly distributions, but they're not really reliable because they rely on the underlying value of the holdings to generate those distributions. If the stocks they're holding drop, then they can't get the same premium by selling calls, so they have to cut their distributions.