Updated: March 25, 2017
If you’re worried about a pullback, I don’t blame you. But don’t sit in cash and earn nothing when you can hedge your portfolio AND collect yields up to 8%.
Let’s talk about a couple of funds that use a well-worn options tactic – writing “covered calls” – that can generate generous yields typically between 7% and 9%. Conveniently, you never have to deal with the complications of options contracts – these funds do all the work for you!
But, why covered calls, and why now?
Covered calls are an options strategy in which you sell call option contracts against stocks you hold. Selling the call options generates income, called a “premium.” From there, a couple things can happen. If your stock reaches the strike price of the call option, you’re obligated to sell your shares to the call buyer (but you still keep the premium). …