Pass on this ETF

Article Excerpt

BMO US PUT WRITE ETF $16.99 (Toronto symbol ZPW) sells put options on a range of U.S. large-cap stocks to generate income for the ETF. These options give the put buyers the right to sell specific stocks to the ETF at a pre-determined price. Buyers profit when a stock’s price falls, as they can then buy shares at cheaper prices on the open market and sell them to the ETF at much higher prices. The fund doesn’t hold any of the underlying stocks. Instead, its assets are held in U.S. Treasury bills or other cash equivalents, thus meeting regulatory requirements for a “cash cover” of its options exposure. The main objective of the ETF is use the proceeds from the put options to pay distributions. As a result, it yields a high 6.6%. The BMO US Put Write ETF aims to cut risk by selling a diversified range of put options. It also tries to avoid stocks are likely to drop sharply in the near term due…