Covered Call Exchange Traded Funds

Selling covered calls on the stocks in your portfoliosome sort of index. Covered call writing ETFs are
is a way to earn additional income. Many expertsactively managed. That is, the fund managers are
consider this strategy to be a low risk way toselecting which stocks to buy and which calls on
increase portfolio return.those stocks to sell.
However, options are complicated, much more soETFs that somehow use covered calls to enhance
than they seem to be at first. Few people, eventheir returns include:
many experienced investors, don't understandBlackRock Global Opportunities Equity Trust (BOE),
them fully. Besides, there are a huge number ofDow 30 Premium & Dividend Fund
possible options to choose from. You can sell in(DPD),Eaton Vance Enhanced Equity Income Fund
the money calls, close to the money calls and out(EOI), Eaton Vance Enhanced Equity Income Fund
of the money calls. You can sell them with(EOS), Eaton Vance Tax-Managed Buy-Write
expiration dates of tomorrow or three years inIncome Fund (ETB), First Trust Fiduciary Asset
the future.Management Covered Call Fund (FFA), Gabelli
However, not all these options will produce theGold, Natural Resources and Income Trust (GGN),
same return, and some are riskier than others.Fiduciary/Claymore Dynamic Equity Income Fund
Therefore, many people prefer to have(HCE), ING Global Equity Dividend & Premium
professionals implement this strategy on theirFund (IGD), Nuveen Premium Equity Advantage
behalf. They just don't have the time, knowledge,Fund (JLA), Nuveen Premium Equity Income Fund
confidence or willingness to implement their own(JPZ), Nuveen Premium Equity Opportunity Fund
covered call writing strategy.(JSN), Advent/Claymore Enahanced Growth
When you write a covered call, you're selling& Income Fund (LCM), Madison/Claymore
someone the right to buy 100 shares of thatCovered Call Fund (MCN), Nicholas-Applegate
stock from you at a certain price (the strike)International Premium & Strategy Fund (NAI),
during a certain period (before the expirationNFJ Dividend, Premium and Interest Strategy
date). Because you are selling something of value,Fund (NFJ), and PImco Global Stocksplus &
you get paid some money from it. That money isIncome Fund (PGP).
called the premium.These funds are different. Some sell covered calls
If the stock's market price never reaches theon stocks in their portfolios. Some sell them on
strike by the expiration date, you keep both theonly a portion of their portfolio, some on their
stock and the premium. That's the ideal situationentire portfolios. Some of them sell only out of
for a covered call writer, but life is not alwaysthe money calls. Some also buy protective puts.
ideal.All of them pay monthly or quarterly dividends.
If the stock's market price goes up to and pastYou should evaluate them several ways. First,
the strike price, then that stock will be sold out ofwhat are their management fees? The lower a
your portfolio. You still kept the premium, and thefund's management fees, the higher its long term
sales price. Minus, of course, for the commission.performance.
This situation is not considered ideal, because youAnd how well does it track the Buy/Write Index
lost the difference between the actual market(BMX)? BXM is the covered call index as calculated
price and the strike price. But most covered callby the Chicago Board of Exchange.
investors shrug their shoulders at this. They haveInvestors should also bear in mind that the option
still made a profit. And if they'd just bought andmarketplace is extremely competitive. Making
held the stock, they wouldn't have realized the fullconsistent profits without taking large risks is
profit anyway.difficult even for professionals. And covered calls
Exchange traded funds or ETFs are a form ofwork better in some types of markets than
closed-end mutual fund. Most of them followothers.