A Covered Call Strategy for the NASDAQ 100

01/29/2020 5:00 am EST

Focus: ETFS

Neil Macneale III

Editor, 2 for 1 Stock Split

The most obvious issue impacting our 2 for 1 portfolio is the lack of splits; indeed, for much of 2019, we have been loading up on what I think may be promising companies, but ones that have not announced a split, notes Neil Macneale, editor of 2-for-1 Stock Split Newsletter.

Being just another stock picker makes me uncomfortable. As you know, the average fund manager fails to beat the broad market indexes. Time will tell if split announcements will rebound and whether or not we can maintain a steady course until they do.

Still, we currently have no new splits to consider, so it’s time to get creative. Therefore, our latest buy is going to be an ETF (exchange traded fund) that will stand in for a large percentage of our present cash account.

One of my loyal subscribers pointed out that the Global X NASDAQ 100 Covered Call ETF (QYLD) might be nearly as safe as a short- term bond fund while offering an 8% to 10% yield. I have never traded options but I do know about ETFs, and this appears to be a solid one.

QYLD has almost $1 billion in assets, it’s less volatile than the market, and has a reasonable 0.60% expense ratio. It is sponsored by Global X, a 10-year old business managing over 70 other ETFs. QYLD makes its money by owning the stocks in the NASDAQ 100 Index and then selling call options on the index.

Without getting too far into the weeds, this strategy provides a way to earn income from an index that is known as a vehicle for growth while mitigating the down-side risk, all while reducing volatility and maintaining good diversity.

I’m going to add QYLD to the portfolio; the ETF will be viewed as a proxy for our cash and will not be on the 30-month ladder like our stock positions. If there is a flurry of splits, I won’t hesitate to sell off QYLD to allow us to get back to the “normal” 30 stock portfolio that we have been missing for a while now.

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