Published Tue, 12 May 2020 18:07:31 -0400 on Seeking Alpha
Covered call writing is a conservative, income-focused options strategy that benefits from periods of increased volatility.
This article will examine QYLD's performance and why it can be a promising defensive asset that still yields over 10%.
Concerned investors can utilize covered call funds to access the downside protection offered by the strategy without having to write the options themselves.
The tech-heavy Nasdaq index on which QYLD is based includes many of the strongest performers of the most recent downturn.
Covered calls are not without risk and are affected by market movements albeit to a lesser extent. Investors unwilling to risk the market should consider fixed-income investments instead.
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Over the past three months, the markets have seen some of the most significant price movements in history. At the same time, traditional methods of evaluation are increasingly becoming disconnected from stock prices as (predictably) disappointing earnings and grim macroeconomic statistics had little effect on the April rally. It is generally accepted that time in the market beats timing the market for long-term investors, but determining what to invest in is harder than ever right now. Based on these factors, I decided to increase my defensive portfolio allocation with the Global X Nasdaq 100 Covered Call ETF (QYLD).
How covered calls work
The goal of the covered call strategy is to profit from selling call options while owning the underlying stock. Higher volatility can lead to larger premiums when selling options. The ideal situation for a covered call is for the stock to move up to the strike price before the option expires allowing the seller to collect both the premium and the... Read more