Recon: High Yield from Covered Calls

12/12/2016 7:00 am EST

Focus: ETFs

Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

There was a bit of a relief rally in the utilities, REITs, consumer staples and telecom sectors late last week as all of these spaces were dramatically oversold, explains Bryan Perry, editor of Cash Machine.

However, the sands of income investing have shifted and it behooves us to sell defensive stocks into strength and rotate where possible into rate-sensitive and economically sensitive assets.

The world changed with the November 8th US presidential election, and I’m charged to work with the new world order in the financial markets.

Our latest new buy recommendation is Recon Capital NASDAQ 100 Covered Call ETF (QYLD).

The ETF seeks to provide investment results that will closely correspond to the price and yield performance of the CBOE NASDAQ 100 BuyWrite Index (BXN).

The BXN is a passive total return index based on (1) buying a NASDAQ-100 stock index portfolio, and (2) “writing” (or selling) the near-term NASDAQ-100 Index (NDX) “covered” call option, generally on the third Friday of each month.

QYLD is the only fund traded that applies a covered-call strategy to the Nasdaq-100. The NDX call written will have about one month remaining until expiration, with an exercise price just above the prevailing index level (i.e., slightly out of the money).

The NDX call is held until expiration and cash settled, at which time a new one-month, near-the-money call is written.

The fund pays monthly distributions consisting of 100% call premium and sports a current yield of 9.67%.

This is a smaller ETF with a market cap of $54 million that I feel is a good pick for our Safe Haven Portfolio. Use a limit order, if at all possible, to purchase shares.

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