Covered Call ETF i need explanation how they work

Obelixtrader

Obelixtrader

As a example i have taken RYLD CC ETF which buy VTWO ETF on Russell 2000 and sell ATM CC on RUT. I read this
https://www.globalxetfs.com/content/files/Options_Strategy_Overview.pdf There is written that
Buy reference index components, write monthly ATM 1 index calls on 100% of the fund's portfolio in an effort to maximize income.

I don't know if I understood correctly. Example RUT value will be 8000 points (1xmultiplier) and VTWO will be 80USD they buy 100 shares of VTWO which has value 8000USD and they sell 1 contract ATM CC option on RUT strike price 8000 premium will be 3%=240USD. After 30 days option expire worthless becose its below strike price close 7000. Price of index will be 7000 and value of ETF VTWO will be 70USDx100 shares=7000USD . Than the portfolio manager sell this 100 shares total value will be 7000+240 premium total 7240 fund has loss 760USD and than he buy 103 shares x70 in value of 7210USD and than sell 1 contract ATM CC option with strike price 7000 premium will be 3%=210USD and so on?
Did I understand that well?
 
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The TSX has have covered call ETFs/Equities for many years now. BMO started with a bunch of them. The problem, is there is no such thing as a free lunch.


While the dividends seem higher than those who do not sell covered-calls, the problem is the CC variants have stagnant growth, while the other's outperform easily on the growth.

You are basically trading off growth of your equity for an artificial dividend. There is no such thing as a free-lunch.
 
The_Krakenite said:
The TSX has have covered call ETFs/Equities for many years now. BMO started with a bunch of them. The problem, is there is no such thing as a free lunch.


While the dividends seem higher than those who do not sell covered-calls, the problem is the CC variants have stagnant growth, while the other's outperform easily on the growth.

You are basically trading off growth of your equity for an artificial dividend. There is no such thing as a free-lunch.
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I know that its not free lunch. NAV erosion over time. My question is about technical side as i wrote above.
 
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