Topic: How To Invest

Pat: Could you please give me your advice on the BMO U.S. High Dividend Covered Call ETF? Regards.

Article Excerpt

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. 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, 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…

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