In my book I explain how I use a covered call strategy to get the kind of return that I want for my portfolio. By comparing it to a rental property, I show how I like to use dividend stocks and trade around them with options to increase my overall yield. When you buy a dividend buying stock it is like buying a rental property with one tenant. You’ll collect that income from them each quarter, year after year, just like rent.
I like to buy big blue chip dividend companies with a 3-5% yield. If we continue like the past, good dividend companies increase slowly over time and when they have extra profit they increase the dividend payment to their shareholders. It’s similar to how housing prices have increased along with rental prices.
Now when I write covered calls on the position, I then add another tenant to my rental. I now have two sources of rent. One source from the call and one from the dividend. I go from getting a 3-5% yield to getting twice that amount when you write these covered calls every other month.
Using this strategy of buying blocks of big blue chip stocks and trading options around them gives me a much better yield. And with this increased yield I will re-invest the money to keep growing my portfolio. It has been working very well for me right now. In my book I explain how I do this and get a third renter by selling puts too!
Keeping my strategy in mind, I’ve come across an entire basket of Horizon’s AlphaPro covered call options ETFs! This takes my strategy and makes it crazy simple for everyday investors. You don’t have to write the calls each month, and you don’t have to worry about replacing the stocks that get called away. There are all of my favourite sectors, like Energy, Financials, and Gold. Plus they’ve just launched a US Equity (CDN $ headged) covered call ETF that helps diversify the portfolio.
The ETFs will sell covered calls on the basket of stocks every 1-2 months at about 5% over the current stock price. In any market other than a crazy bull market, this strategy has been shown to outperform. The fund management fees are only 0.65% too.
Here is what I would do for sector break down:
20 % HEE – AlphaPro Enhanced Income Energy
20% HEF- AlphaPro Enhanced Income Financials
10% HEP- AlphaPro Enhanced Income Gold
25% HEX – AlphaPro Enhanced Income CDN Equity
25% HES.UN – AlphaPro Enhanced Income U.S. Equity (It converts to an ETF soon)
This portfolio currently has over a 10% yield thanks to the extra income from writing the calls. It also writes calls on non-dividend paying companies in the index to generate income on stocks that otherwise wouldn’t have some. The ETFs are available in a DRIP (Dividend Re-investment Program) so that the juicy monthly yield buys more units. Right now HEE is paying a 16% yield and we all know how I love big yield. All we need now is an AlphaPro International Equity covered call ETF!
I heart Horzon’s new covered call ETFs,
Dave
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