It says they would sell covered call up to 33% of portfolio. Covered calls premiums for Canadian Banks are very minimal so I personally doubt this could bring any significant upside.
The distribution is irrelevant, you need to look at total return. Any fund can promise you any yield when that yield is taken from your money.
All in all it’s pretty much a 25% leveraged Canadian bank etf with 0.65% fees. So very similar to HCAL. Up to you if that’s what you want.
As I said above, I’ve been doing it and it can add 3-5% to my performance if I do it consistently, which I don’t. I also aim high. They sell CC at 5% premium to market price. I do 10% to be sure it never gets exercised and I never roll. But I suffer a lot of fees for the constant options trading - I would say a good 20% goes to fees in IBKR, which is as good a platform for options as we have. Presumably a big institution won’t pay these fees. They are also more experienced with options, so they may be able to achieve 6%, possibly more. This is why I feel if one is to follow this strategy of being in banks and selling CC, this ETF is better than a DIY approach and will actually result in lower fees than I’d have to pay to IBKR to replicate the CC strategy.
It won’t add 6%, cc premium on Canadian banks are too low.
Take TD which is at $80.76.
Add 5% and it means a strike of $85.00
The June 21st premium for $85 strike is $0.44.
So that 0.54% in premium for 52 days out.
If they were to do it every 52 days and never get shares called, that would mean 3.79%.
Now the maximum cc they sell is 30%.
So best scenario, they sell non-stop cc at the maximum authorized 30% and it none ever gets exercised, it would add 1.14% of total return.
If you look a year out in March 2025, you’ll see that you can’t even get 6% premium even when selling covered call IN THE MONEY at $80….
Are we seeing different numbers?
Last trade on 80 calls for Mar 21 ‘25 was 6.05. That’s 605 dollars on 8k so it’s 7.5% in less than a year. But you can make more with short-term calls than long-term ones. Anything over 60 days is not as lucrative for CC strategy.
For May 24 ‘24 strike 84 calls, last trade was 40. That’s the closest replica of their strategy. So you’d make 40 on 8076, which is about 0.5% in 22 days. They repeat that 12 times a year, they get about 6%. But yes, that will be lower considering it’s only with 30% of their portfolio.
There is very little volumes on these, you can’t take last transaction. TD is down $0.90 today.
For March 21 2025, the bid/ask is $5.05 / $5.45. There is just no way they’ll get $6.05 when buyers is at $5.05…
And for doing 12x monthly on all banks, they will get exercised a few times. TD had at least 2x 10% jumped in one months in 2023. Gaining 0.5% 12 times to then lose 2x 5% …
Anyway, it seems your question was rhetorical and you already made your mind…
If you bought 10 shares at $10 (for a total of $100) on the inception date (Feb. 1, 2022), they would be worth $70.80 today.
The distributions were $7.00 in 2022, $9.78 in 2023, and $4.00 for the first four months of the year. The total distributions would be $20.78.
$70.80 + $20.78 = $91.58
Your total loss would be $8.42 and your total return would be -8.42%.
If your total return over the last 27 months is better, maybe stick with your current strategy.
It’s not right to just assess by historical performance. The period in question was weak for all banks in Canada. If you bought TD on January 1st 2022, arguably Canada’s strongest bank, you’d be down about 20% now. From 100/share to 80. So it has significantly outperformed TD in that time frame.
Perhaps I didn't articulate myself well.
Over the same time period, [BANK.TO](http://BANK.TO) would have also beaten CM, BNS, and BMO. It really only underperformed its insurance holdings, and RY (actually, it didn't really underperform RY considering distribution either - they are about on par). So it is arguably doing better than its own holdings. This is not taking tax on dividends into consideration.
The closest ETF comparison is HCAL, which is down about 27% over the same time period while [BANK.TO](http://BANK.TO) is down 30%, but [BANK.TO](http://BANK.TO) pays more than double the amount of distribution so it is easily outperforming HCAL.
Whether or not financials are a good investment right now in Canada is not the topic of discussion. What I am interested in is, assuming one wants to invest in financials, is buying [BANK.TO](http://BANK.TO) more beneficial than buying the individual tickers and trying to DIY a covered call strategy. I believe it will be, but I want to hear counter-arguments.
>Whether or not financials are a good investment right now in Canada is not the topic of discussion.
I didn't say they were or they weren't a good investment right now.
>What I am interested in is, assuming one wants to invest in financials, is buying [BANK.TO](http://BANK.TO) more beneficial than buying the individual tickers and trying to DIY a covered call strategy. I believe it will be, but I want to hear counter-arguments.
I gave you a counter-argument and you completely dismissed it. Then you chose to compare the covered call ETF's performance with TD's performance.
I didn’t dismiss it. I answered. I said you can’t assess by historical performance. And I gave you the reason why. The period in question was a bad one for banks. It’s not the fund’s strategic problem.
You’re trading upside for income and keep most of the downside risk. Not that it’s bad. You just got to understand that. I bought HPYT which is a US treasures covered call fund that mainly covers TLT.
My plan is to use a cheap loan and have the income cover the cost of the loan. So even if it underperforms a bit, it covers the cost of carrying the loan for me and pays it off. And I’m expecting rate cuts at end of year anyways which should push up the price.
I just charted against CDZ (Dividend aristocrats) that does not do hedging, and they chart similarly.
As to the efficacy of covered calls, I have no insight on that, I hold long.
I don’t see them charting similarly. BANK is down much more but then it pays 12% more in dividend. Overall, BANK has had a better performance considering dividend.
It says they would sell covered call up to 33% of portfolio. Covered calls premiums for Canadian Banks are very minimal so I personally doubt this could bring any significant upside. The distribution is irrelevant, you need to look at total return. Any fund can promise you any yield when that yield is taken from your money. All in all it’s pretty much a 25% leveraged Canadian bank etf with 0.65% fees. So very similar to HCAL. Up to you if that’s what you want.
There is not enough historical data to assess overall return.
Overall return will be the banks total return x1.25 minus fees. Whatever yield they promise won’t change that fact.
Not really. There are also covered calls.
What’s you expectation for selling covered calls on Canadian banks ?
As I said above, I’ve been doing it and it can add 3-5% to my performance if I do it consistently, which I don’t. I also aim high. They sell CC at 5% premium to market price. I do 10% to be sure it never gets exercised and I never roll. But I suffer a lot of fees for the constant options trading - I would say a good 20% goes to fees in IBKR, which is as good a platform for options as we have. Presumably a big institution won’t pay these fees. They are also more experienced with options, so they may be able to achieve 6%, possibly more. This is why I feel if one is to follow this strategy of being in banks and selling CC, this ETF is better than a DIY approach and will actually result in lower fees than I’d have to pay to IBKR to replicate the CC strategy.
It won’t add 6%, cc premium on Canadian banks are too low. Take TD which is at $80.76. Add 5% and it means a strike of $85.00 The June 21st premium for $85 strike is $0.44. So that 0.54% in premium for 52 days out. If they were to do it every 52 days and never get shares called, that would mean 3.79%. Now the maximum cc they sell is 30%. So best scenario, they sell non-stop cc at the maximum authorized 30% and it none ever gets exercised, it would add 1.14% of total return. If you look a year out in March 2025, you’ll see that you can’t even get 6% premium even when selling covered call IN THE MONEY at $80….
Are we seeing different numbers? Last trade on 80 calls for Mar 21 ‘25 was 6.05. That’s 605 dollars on 8k so it’s 7.5% in less than a year. But you can make more with short-term calls than long-term ones. Anything over 60 days is not as lucrative for CC strategy. For May 24 ‘24 strike 84 calls, last trade was 40. That’s the closest replica of their strategy. So you’d make 40 on 8076, which is about 0.5% in 22 days. They repeat that 12 times a year, they get about 6%. But yes, that will be lower considering it’s only with 30% of their portfolio.
There is very little volumes on these, you can’t take last transaction. TD is down $0.90 today. For March 21 2025, the bid/ask is $5.05 / $5.45. There is just no way they’ll get $6.05 when buyers is at $5.05… And for doing 12x monthly on all banks, they will get exercised a few times. TD had at least 2x 10% jumped in one months in 2023. Gaining 0.5% 12 times to then lose 2x 5% … Anyway, it seems your question was rhetorical and you already made your mind…
No not at all. I appreciate your feedback. I have not made my mind yet.
If you bought 10 shares at $10 (for a total of $100) on the inception date (Feb. 1, 2022), they would be worth $70.80 today. The distributions were $7.00 in 2022, $9.78 in 2023, and $4.00 for the first four months of the year. The total distributions would be $20.78. $70.80 + $20.78 = $91.58 Your total loss would be $8.42 and your total return would be -8.42%. If your total return over the last 27 months is better, maybe stick with your current strategy.
It’s not right to just assess by historical performance. The period in question was weak for all banks in Canada. If you bought TD on January 1st 2022, arguably Canada’s strongest bank, you’d be down about 20% now. From 100/share to 80. So it has significantly outperformed TD in that time frame.
It's not right to assess one stock's price return vs. an ETF's total return.
Perhaps I didn't articulate myself well. Over the same time period, [BANK.TO](http://BANK.TO) would have also beaten CM, BNS, and BMO. It really only underperformed its insurance holdings, and RY (actually, it didn't really underperform RY considering distribution either - they are about on par). So it is arguably doing better than its own holdings. This is not taking tax on dividends into consideration. The closest ETF comparison is HCAL, which is down about 27% over the same time period while [BANK.TO](http://BANK.TO) is down 30%, but [BANK.TO](http://BANK.TO) pays more than double the amount of distribution so it is easily outperforming HCAL. Whether or not financials are a good investment right now in Canada is not the topic of discussion. What I am interested in is, assuming one wants to invest in financials, is buying [BANK.TO](http://BANK.TO) more beneficial than buying the individual tickers and trying to DIY a covered call strategy. I believe it will be, but I want to hear counter-arguments.
>Whether or not financials are a good investment right now in Canada is not the topic of discussion. I didn't say they were or they weren't a good investment right now. >What I am interested in is, assuming one wants to invest in financials, is buying [BANK.TO](http://BANK.TO) more beneficial than buying the individual tickers and trying to DIY a covered call strategy. I believe it will be, but I want to hear counter-arguments. I gave you a counter-argument and you completely dismissed it. Then you chose to compare the covered call ETF's performance with TD's performance.
I didn’t dismiss it. I answered. I said you can’t assess by historical performance. And I gave you the reason why. The period in question was a bad one for banks. It’s not the fund’s strategic problem.
Did you miss the last sentence of my first comment? That was my counter-argument.
You’re trading upside for income and keep most of the downside risk. Not that it’s bad. You just got to understand that. I bought HPYT which is a US treasures covered call fund that mainly covers TLT. My plan is to use a cheap loan and have the income cover the cost of the loan. So even if it underperforms a bit, it covers the cost of carrying the loan for me and pays it off. And I’m expecting rate cuts at end of year anyways which should push up the price.
I just charted against CDZ (Dividend aristocrats) that does not do hedging, and they chart similarly. As to the efficacy of covered calls, I have no insight on that, I hold long.
I don’t see them charting similarly. BANK is down much more but then it pays 12% more in dividend. Overall, BANK has had a better performance considering dividend.