Deciphering the World of Covered Call Funds

Click here for the ETFDesk Covered Call Cheatsheet

A fairly recent article in the WSJ titled “Buy-Write: Safe Harbor in Troubled Times?” by Brett Arends discussed the benefits of covered-call strategies. We thought the author did a good job of explaining the benefits including;

1. “Call options are usually overpriced. Those who sell them tend to make more money than those who buy.”

2. “Callan, in 2006, concluded that the strategy “has generated superior risk-adjusted returns over the last 18 years… generating a return comparable to that of the S&P 500 at approximately two-thirds of the risk.”

3. “In numbers, from 1988 through 2006, Callan said the buy-write strategy had made compound returns of 11.77% a year compared to 11.67% for the S&P, with much less volatility.”

4. “Over the past two years, someone who invested in a regular S&P 500 index fund would be down 43%. At the lows, early last month, they were down 54%.Over the same period, someone following the BXM would have lost a much more modest 25%. At the worst point they were down 37%.”

5. “Over a ten year period, buy-and-hold investors in the total US stock market have lost about 2% of their money. Investors pursuing a BXM strategy would be up about 13%.”

6.” From April 1989 to the present, the BXM has made total returns of about 400% — slightly ahead of the broad US equity market. In other words, the buy-write index beat the stock market, with a lot less volatility.”

The author mentions there are numerous covered call closed-end funds, however failed to mention specific tickers and how the many funds differ. So, we thought we would…

You can find more detailed information on the funds at including yield, discount, dividend history and more.


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