BMO Covered Call Canadian Banks ETF (ZWB.TO)

A good product, but it might be too good by half right now. This is a very good environment for banks right now. The problem with the covered calls is that if they start going up too much, they could be called away and you won’t be able to get as much.

Bank stocks are at a very interesting place right now. They normally do very well at this time of year. Seasonality is normally from the end of August right through until the end of November. That is a time when the banks report their 4^th quarter results, and historically they like to give you good news at that point. If you own, the end of this month will be the time to take some really good profits.

A perfectly fine product. The caveat is, it is just concentrated in Canada.

His favourite way for investors in Canada to play the banks. For the next 5 to 10 years they will go sideways – no growth. The covered call enhances the yield. Wait until the banks get back to 1 to 2 year lows before putting money in if you want to better time it.

He did research on this as an offset to just simply buying a bank portfolio. What he found was that you are better off buying 3 individual banks. If you want some coverage, you could look at the Equal Weight Bank ETF (ZEB-T). The covered call really only works if you expect banks to be in a flat period, or going down.

For an RESP, where you are looking out 5+ years, this would be a good investment, but he would prefer just buying a bank.

BMO Covered Call Cdn Banks (ZWB-T) or Premium Income Corp (PIC.A-T)? If you want to be in the banks for the next few years, this is probably the better holding.

These are the 6 major banks in Canada, and they are writing covered calls against 40%-50% of the portfolio. What you are collecting is the dividends from the bank, plus the option premium that the fund is writing on an annual basis. They’ve raised their distribution wants. The banking sector is a good place to be. He would caution you to look at this in the context of the other banks you are holding, only that you may become very overweighted in that specific sector.

Canadian banks with a covered call overlay. There is not a lot of growth in the banks for the next few years so this is the best way to play them. These aren’t risk-free assets, but they can be yield enhancing. Canadian banks will likely re-test recent lows in September/October, so be patient before committing new money to them.

These are products designed to give you a little more comfort, in that if things go really, really well, you get called away and you don’t have all of the upside. However, if things go down, sideways, or even up a little bit, you at least get the income from having written the Call Options. A perfectly fine product and a perfectly fine way of playing the banks.

They write covered calls on only half the portfolio. Typically they are one and two months down the road and then they are rolled over. They write one standard deviation above the current price. They only rebalance the portfolio twice a year. The covered call overlay is very important as banks are going to go sideways for some time.

This gets extra income from writing Calls options on the banks. If you do have a good run on a bank, you can get called out and not capture the full upside. Good dividend which is targeted, rather than having fully earned it.

The covered call overlay is actively managed. When they are called away they have to actively buy back the holding.

Covered call overlay should outperform in a sideways market. Money in banks is dead money.

If there is financial systemic risk, banks underperform considerably. It is not a risk-free, easy place to go.