Summary
- I construct covered call ETF portfolios using a three-bucket approach: safe, moderate, and ultra-high yield for balanced income and risk.
- Portfolio weightings target 50% in 10–25% yield ETFs, 30% in 25–50% yield, and 20% in 50%+ yield, with regular rebalancing.
- Proxi…
Summary
- I construct covered call ETF portfolios using a three-bucket approach: safe, moderate, and ultra-high yield for balanced income and risk.
- Portfolio weightings target 50% in 10–25% yield ETFs, 30% in 25–50% yield, and 20% in 50%+ yield, with regular rebalancing.
- Proxies like IWMI (safe), BLOX (moderate), and MSTY (ultra-high yield) illustrate how to allocate and manage risk across buckets.
- Focusing on portfolio construction, not single high-yield ETFs, is essential for sustainable income and risk mitigation.
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I’ve been writing a lot about covered call ETFs lately, as they’re quickly becoming a favorite for many investors seeking a boost in income from their ETF holdings.
Although it’s important to understand how covered call ETFs
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**Analyst’s Disclosure:**I/we have a beneficial long position in the shares of BLOX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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Quick Insights
A three-bucket approach—safe (10–25% yield), moderate (25–50%), and ultra-high yield (50%+)—with respective weightings of 50%, 30%, and 20% balances income and risk.
Overweighting ultra-high yielders exposes portfolios to unsustainable income and higher volatility; limiting such holdings to ~2% each reduces risk of underperformance.
Rebalancing is necessary when ETF price movements cause weightings to drift from targets, ensuring risk remains controlled and income goals are met.