Chasing Income, Sacrificing Alpha: Covered Calls For All Advisors

Covered calls have an ageless allure. You have a portfolio of stocks that you like for the long term, so you don't want to sell yet . . . either they still have unrealized potential or they're going through a temporary rough patch.

But especially when traditional income streams for investors aren't working, the ability to write a call option on those stocks and collect the premiums can be extremely valuable. As long as the option isn't exercised, the portfolio remains intact. Every month, new calls get written and new premiums roll in.

Global X has built an online course that will help you do it yourself for your clients. It takes an hour and qualifies for CE credit.

And if you'd rather farm that out, the firm supports a growing menu of covered call ETFs using rules to extract the premiums across the entire portfolio. You might have already seen the 100% covered strategies that squeeze 8-13% yields out of the NASDAQ, S&P 500 and Russell 2000, surrendering upside when individual options are exercised and the stocks are called away.

For clients who want nominal exposure to the market but need income in the short or long term, these funds can be a godsend. The S&P 500 doesn't even pay 2% in dividends right now, so any effort to generate a higher income rate requires realizing a capital gain (in the best scenario) or simply liquidating for a tax loss. That's neither sustainable in the long term nor fun.

These funds write at-the-money calls on the entire portfolio every month. It's disciplined and rules driven. But for those who want a little less income and a little more upside, new funds just launched that only write calls on 50% of each position. It's worth taking a look.

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