BMO US Put Write Hedged to CAD (ZPH.TO)

It write puts on US stocks with the aim of owning them at lower prices to generate extra yield. He was involved in creating this, but now prefers ZPAY which he also helped create. In ZPAY, half the securities have puts written to acquire at lower prices; the other half are covered calls. Likes it for yield seekers and for those who want less risk (only 60% risk of the S&P). Slightly less downside in a bear market. This is good if markets are stable or fall slowly. Upside is also limited.

Idea was to extract tax-efficient income out of the market. Hasn't taken off in a big way. See ZPAY.

Would not suggest Put Write strategy (ZPH). Would prefer ZPAY for the US market. ZPH never owns the stocks whereas ZPAY wants to own the stock at better prices.

They write puts and buys good companies at lower prices and sells high. He would cycle out of ZPH and ZPW to ZPAY which generates a rate of around 6% but with a better strategy.

ZPH and ZPW way to extract yield from the market without taking a lot of risk. They have been okay but not great. ZPAY is a better way to benefit from the same strategy.

It contains some of the best quality companies in the US. BMO write puts 15-20% below the market price. They generate additional income from the puts. Every month if the markets don’t fall to those prices, then they harvest the income on those puts. BMO does not want to own the stocks so if necessary they buy the option and re-write the put. He expects 6-7% from it. If it is not working out the way you hoped, pricewise, then you have to ask if you can take the asset and put it somewhere else. This ETF won’t grow in price.

ZWE-T vs. ZPH-T. ZPH-T is the put write strategy. If we have an acute sell off, both will lose a little money. If you are branching outside of Canada, there is no dividend tax credit, but put write gives additional income. He recommends having a bit of both in order to diversify. Europe is a bit more attractive over the next couple of years.

ZPW-T vs. ZPH-T. ZPH-T is hedged against currency risk. The cost of hedging is the differential in the cost of writing the forward contract. He is fully hedged on all portfolios. The CAD$ may go back to $.80. If markets sell off and contracts come into the money they may get taken out. A 20% down for the market will cause many of their stocks to come down into the money.

ZPW-T vs. ZPH-T. You have 100% equity exposure even though they are miss-classified on many trading platforms that look at what is in them. They are writing options. The fixed income holing is just there for margin purposes. It is a treasury bill so there is no risk to it. These are not fixed income.

Low Risk ETF with a Monthly Dividend. It yields 6-7% a year. It hedges the currency. There is not a lot of price movement up and down. It is not risk free, however. It will go down half as fast as the market in a rapidly declining market.

ZPH-T or ZPW-T? He likes them both. When he thinks the CDN$ is going to get weaker, $.02, $.03, $.04, he wants ZPW. When he thinks the Cdn$ may get stronger, then he wants this one and wants to hedge the currency risk.