Covered call writing is where you sell a call option against a stock you own. You receive cash for selling the call but are obligated to sell the stock at a fixed price (the “strike price”) if the holder of the call exercises the option. In other words, in exchange for being paid the price of the option, covered call writing means you give up any increase in the stock above the strike price. Selling call options generates an income stream. However, it also tends to shrink any capital gains the fund's portfolio might generate. When the stocks the fund owns rise above the strike price, holders of the call options it has sold will exercise those options and buy the stock from the fund at the price fixed by the option's terms. This introduces a filtering mechanism under which the fund has to sell its best picks to call holders at a fixed price, while holding on to stocks that go sideways or down. In other words, if it goes down, you have to hang on; if it goes up, you have to sell. In addition, regardless of market trends, covered call writing means you have to pay a heavy toll in brokerage commissions that eat away at your capital. At TSI Network, we recommend using our three-part Successful Investor philosophy for long-term investing: Invest mainly in well-established companies; Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities); Downplay or avoid stocks in the broker/media limelight. Discover how to put an extra strength in your portfolio with our specific advice on how to identify high-quality dividend stocks. It's all in our newly updated report, Dividend Paying Stocks: How High Dividend Stocks Can Supercharge Your Income Investing. And it's yours FREE!
BMO U.S. High Dividend Covered Call ETF, $18.41, symbol ZWH on Toronto (Units outstanding: 14.7 million; Market cap: $270.6 million; www.etfs.bmo.com), uses covered calls to try to boost its cash flow so it can provide higher distributions to investors.
Pat McKeough responds to many personal questions about specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each… Read More
Faircourt Gold Income Corp., $8.33, symbol FGX on Toronto (Shares outstanding: 4.5 million; Market cap: $37.5 million; www.faircourtassetmgt.com), mainly invests in large- and mid-sized gold producers that are part of the S&P/TSX Global Gold Index.
The company holds mostly high-quality stocks, including Barrick Gold, Detour Gold,… Read More
No experienced, successful investor will be surprised at the suspicions that cling to hedge funds in the wake of repeated financial crises. When that much money floods into an investment area that fast, unpleasant financial events are bound to happen.
The huge investment attracts unscrupulous characters,… Read More
Covered call writing is where you sell a call option against a stock you currently own. You receive cash for selling the call, but you’re obligated to sell the stock at a fixed price (the strike price) if the holder of the call exercises the… Read More
Every Wednesday, we publish our “Investor Toolkit” investing advice series. Whether you’re a new or experienced investor, these weekly updates are designed to give you our specific advice on successful investing. Each Investor Toolkit update gives you a fundamental piece of investing advice and shows… Read More
The Webb Enhanced Income Fund is a mutual fund whose portfolio mainly consists of large-capitalization stocks. It also holds some income trusts and bonds. Resource shares make up the largest component of its stock holdings, at 41%. The fund lost 26.5% in the year ended… Read More
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