The BFI this week involves a play on an expansion in market volatility. You can see that the Volatility Index on the chart enclosed is at a very low level from a year ago. In order to contain risk, an options strategy known as a "strangle" against the SPY is recommended.
....or what to do with $15K Inheritance from Grandma
The specific idea:
1. A a creative conservative investment for those frustrated with low interest rates of 1-2%. An investment in the the BMO Covered Call Utilities ETF.
1. As of as of July 29th/2016 it has generated an annualized yield of 6.65%
2. It delivers a tax-efficient monthly income from dividend paying telecommunications and pipeline dividend stocks.
3. The covered call strategy provides a partial hedge against market declines as well as while increasing income.
4. Its simple. Covered call ETFs make the relatively sophisticated strategy available to individual investors. (the average person usually doesn’t have the experience or know-how to execute option strategies on their own, and most advisers aren’t licensed to sell options).
How do they play it?
Contact your broker or bank and invest in BMO Covered Call Utilities ETF symbol ZWU (Zebra Whiskey Uniform)
Who is this appropriate for?
This is a conservative investment that ideally should be held for an entire market cycle, which generally lasts 4 years.
"covered call ETFs should, over a period of five years or longer, deliver returns that are 1.5 percentage points higher on average than comparable stock market ETFs. Call products will underperform in fast-rising market and outperform in sideways and down markets. Sometimes, the outperformance will come in the form of losing less money.” - Eden Rahim of Horizon Exchange Traded Funds
….related: Also using option strategies the following BMO ETF below is a more aggressive and unconventional alternative that sells puts against money in T-Bills aiming to gain an annualized return of 8%. By selling out of the money puts the fund is intended to protect investors from a 10-`5% decline. That said a 20% decline in the stock market would affect the strategy negatively.
Also, Horizons Enhanced Income Gold Producers ETF uses the covered call strategy gain exposure to North American base gold mining and exploration companies while generating monthly distributions of dividend and call option income. An investment to consider in a developing bull market.
Looking for growth? Then pay attention. Maxam Capital searches the world, talking to management to come up with this week's Big Fat Idea - and it's a good bet you haven't heard of it ...but don't worry it trades on the Toronto Stock Exchange