11Mon·

Why covered call ETF strategies are not an income and are bad for wealth accumulation.

ETFs that partly implement a CC strategy also underperform the market over the long term.

$QYLE (-1.29%)
$JEPI (-0.5%)
$JEGP (-0.8%)
$JEPQ (-1.56%)
$WINC (-0.36%)
$IE000MMRLY96 (-1.24%)

https://www.youtube.com/watch?v=K3sYY3T7V8k

www.youtube.comCovered Calls: What People (Still) Get Wrong

28 Comments

T@CompoundingCouchCo

11Mon

Good video, and I get it, and I agree — but do what works for you.
It’s kind of like the dividend vs. accumulating ETF debate. What most people forget to mention, though, is opportunity cost.

If you get monthly payouts, no one says you have to reinvest them in the same stock or ETF. You can put that money anywhere you see potential. Every payout gives you a choice.
Most people are probably better off just buying a global accumulating ETF and forgetting about it. But for me, parking money in JEPG makes more sense than leaving it in bonds or uninvested cash.
Sure, I could use IWDA, but then I’d have to realize losses instead of just seeing smaller monthly payouts. Plus, trading costs make it pointless as a “parking” option, at least for me with my small portfolio. Long term, you should stay invested — but monthly income let me stay flexible and jump on new ideas when I want.
I’m not trying to beat the S&P with JEPG. I just like having the freedom to invest when opportunities pop up.
In my view, JEPG should be compared to bonds or to not investing at all. The key is to understand the risk: during a market downturn, you’ll likely have less available capital with JEPG. You just need to decide whether that tradeoff works for you.

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TotallyLost@TotallyLost

11Mon

@CompoundingCouchCo I must disagree with your statement that “JEPG should be compared to bonds (...)”.

This is because bonds have the risk profile of bonds.
And your JEPG has the risk profile of stocks.

You are exposed to the same risk of loss, with limited upside potential.
In other words, you have a lower expected return for the same risk.

Why would anyone do that...

Your reasoning is: “I'm not trying to beat the S&P with JEPG. I just like having the freedom to invest when opportunities arise.”

But that's nonsense. Because you have no planning certainty.
The shorttherme volatility of this produklt makes it unsutible as an inverstment resserve.
When the market crashes, this crashes too.

Just hold Bonds, or a Moneymarket fond.

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T@CompoundingCouchCo

11Mon

@TotallyLost Thank you.
You’re absolutely right in many ways — and I’m probably wrong in just as many.

But how often do we really see true market crashes? The panic sells in recent years were mostly overreactions, and markets recovered quickly. In my view, bonds still deliver lower returns than JEPG.

Even in a 15–20% drawdown, JEPG — though down in value — would likely keep paying more monthly income than bonds. Sure, if you need to sell, you’re in a tougher spot, but if you can hold, it usually works out better.

For my investing style, JEPG just fits. Even during short-term crashes like COVID, I had no problem sitting it out. Man, would had been nice to have JEGP back then.

Overall, it’s been more beneficial for me than bonds. I have a smaller portfolio, so I can take on higher risk — and I’m doing it because I believe the world will keep moving forward and growing. I just can’t afford to build my strategy around uncertainty.
Smart people learn from others’ mistakes — I tend to learn from my own. But at least that way, I’m building a strategy that truly works for me.

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TotallyLost@TotallyLost

11Mon

@CompoundingCouchCo I would prefer a high-yield bonds-ETF in local currency.
This should offer almost the same expected return with lower volatility.
https://extraetf.com/de/etf-comparison?products=IE0003UVYC20-etf,IE00B66F4759-etf

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T@CompoundingCouchCo

11Mon

@TotallyLost thanks ! i would definitely look into it !

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S.A.U.@SAUgut777

11Mon

🍿🥤

I agree with you on many things, but as always, "exceptions prove the rule here"

<security:n/a:IE000MMRLY96>
$CEPI

Above all, just like $WINC, they provide very good additional cash flow (10.20 and even more percent return, 30% tax-free) for additional scope or further investments, which in turn can lead to growth.

So you can't say that across the board.

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TotallyLost@TotallyLost

11Mon

@SAUgut777 why, of course you can generalize things if the properties are the same.

In this case, these products have the same downside as their underlying, but the upside is capped.

As long as the market goes sideways or goes up very slowly, these products are great. But any kind of vola kills your return because the sold calls negate the mean reversion effect of the shares.
In other words, these products don't recover so well after crashes.

So it's almost always better to hold a comparable ETF and just sell shares when you need money.

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S.A.U.@SAUgut777

11Mon

@TotallyLost mööööp....false ☝🏻

Then explain why the <security:n/a:IE000MMRLY96>, for example, has fully recovered from its April drop (~ -18%) and has been generating clean returns + dividends since then...is exactly the opposite of your blanket statement 😅

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TotallyLost@TotallyLost

11Mon

@SAUgut777 because it is an actively managed product and the stocks it contains have outperformed the Nasdaq.
So you can't benchmark it cleanly.

But when I look at the highest weighted stocks, it looks like a mixture of:
$XDWT and $XDWT.
And they have both performed significantly better.

https://extraetf.com/de/etf-comparison?products=IE000MMRLY96-etf,IE00BM67HT60-etf,IE000I8KRLL9-etf

I would also be GAAAAAAANY careful with historical performance for products that are less than a year old. 😅

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S.A.U.@SAUgut777

11Mon

@TotallyLost ah, suddenly it's an actively managed product that contains stocks that outperform the Nasdaq....interesting, before it was still the 0815 product 🤷🏻‍♂️👍🏻 ...I like statements like that😂

And a few key figures on the benchmark:

Despite a ~ -17% drop in April, the ETF has achieved a YTD of ~+7% + monthly dividend (~23-24% dividend yield). Clearly not a long history, but a clean performance so far.

Oh and the ONLY one talking about historical performance here is you 🤣

The fact is, it's been running smoothly so far, both after a drop and in a rising market.

And the nice thing about the composition is that it's not just stubbornly relying on MAG7 as usual 🤫

So all in all, your sweeping statement from earlier is actually completely for the Axxxx 🤷🏻‍♂️

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TotallyLost@TotallyLost

11Mon

@SAUgut777 The fact is, if you put the same stocks in a fund and didn't sell calls on them, the performance would be better.
You're not going to deny that, are you?

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Mr. K@TechNav

11Mon

@SAUgut777 One question. Have you ever compared how a portfolio would perform that had the same big tech stocks as the <security:n/a:IE000MMRLY96>? e.g. YTD? I mean 1/4 of the ETF is Palantir (YTD +121%) Oracle (YTD +49%), Coinbase (YTD +25%) and Broadcom (YTD +36%) . 🤷🏻‍♂️

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Mr. K@TechNav

11Mon

@TotallyLost hahaha I wrote my comment without reading yours. We had the same thought. 🤣

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S.A.U.@SAUgut777

11Mon

@TotallyLost In a way, yes, because you always forget the monthly cash flow when calculating performance.

Or to put it another way, how much do ~7% p.a. + ~23-24% dividend yield p.a. add up to in total performance for you?

In addition, I don't have to sell stocks that are not performing well and 30% of the dividend is still tax-free.

This in turn is invested in other stocks and thus produces another plus...so where is your performance calculation now?

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S.A.U.@SAUgut777

11Mon

@TechNav I don't know if you both need reading glasses, but maybe you should study the composition of the ETF....

...is relatively equally positioned (were all around 5% at the beginning), only that some positions have performed better than others...and where exactly is your problem with that 🤷🏻‍♂️😂

Other ETFs consist mainly only of MAG7 🤫

I would have had to pump in a lot of money to buy this composition, so I have it, participate in it, generate good cash flow + a bit of price growth for new positions or expansion and at the same time refute your thesis put forward at the beginning of the discussion 🤣👍🏻

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TotallyLost@TotallyLost

11Mon

@SAUgut777 The charts I sent from ExtraETF are total return.
They include the distribution.
I have not forgotten them.

Do you know whether the ETF has rebalanced often since its launch?
If not, you could calculate the average return of the top 10 position and compare it with that of the fund.
The difference should then roughly correspond to the lost return.

Or how else is this supposed to work?
How do you want to sell calls and have the upside at the same time? This is only possible if the calls are not redeemed, i.e. are far out of the money.
But if they were, the option premium (which you wrongly call a dividend) would also be negligible.

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View all 9 further answers

Cekay@CMustermann

11Mon

I use CC ETFs to pay off the loan installment from Scalable Credit, the rest (because they pay out significantly more than the loan costs and I can thus increase the loan amount) goes into factor ETFs for performance.

These things are simply a tool for massively high distributions, no more and no less. Of course, they have corresponding downsides in an efficient market :D

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Pedro M.@serkeftin

11Mon

I saved it to watch it later with more time, but if I agree then I'll send mine... I have at least 2 such positions of CC

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wealth_whisperer_dlnfa@wealth_whisperer_dlnfa

8Mon

I don’t agree. I like covered call. These are the reasons:
1) Covered call allow you to invest in unproductive assets and cyclical and being exposed to them. One example? Gold. You can buy when it is cheap and forever holding it.
2) Covered call allow you to go on margin and bust your return. Yes because if you go on margin you have the income the close the margin
3) Yes covered call will underperform a market when it is very in bull. There is a solution anyway, don’t buy covered call when a market it is in bull.

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