Covered call exchange traded fund strategies provide a great way to diversify in a slow growth market and generate some extra cash.
In the upcoming webcast, Using Options to Maximize Returns, Jon Najarian, Co-Founder of optionMONSTER and tradeMONSTER, Nicolas Piquard, Vice President and Options Strategist with Horizons ETFs Management, and Joe Cunningham, Executive Vice President and Head of Capital Markets for Horizons ETFs Management, explain options strategies and how ETFs can utilize options to provide a portfolio with greater diversification.
For instance, the covered call strategy is a good way to generate cash in a muted market environment. By implementing a covered call strategy, an investor who owns a stock sells, or “writes,” call options and collects the income from the premiums paid by the buyer of the option.
There are a number of covered-call-related ETFs on the market. The Horizons S&P 500 Covered Call ETF (NYSEArca: HSPX) uses covered calls with S&P 500 securities andHorizons Financial Select Sector Covered Call ETF (NYSEArca: HFIN) tracks the S&P Financial Select Sector Covered Call Index.
While the performance of HSPX, along with other covered call strategies, has lagged the S&P 500 during the bull market last year, covered call ETFs can hold up in range-bound or down-trending markets. HFIN can also be used to rotate out of traditional S&P Financial Select Sector exposure during different market cycles. Moreover, the strategies can help diminish volatility as the premiums typically rise during rocky market conditions.