BMO US Put Write ETF (ZPW.TO)

He talked about swapping out ZPW-T a while back, but now he likes it with the stronger CAD $. ZPH-T gives you hedging and you would eventually swap back into it.

He doesn’t use this, but sees absolutely nothing wrong with it. It is very similar to doing a Covered Call.

This is a strategy where you are writing Put options against US securities. You are going to be penalized on collecting US dividends as it will be taxed as ordinary income. However, if you write a Put on the US stock, the dividend is implied in the Put. It is going to trigger to the US exchange fund as a capital gain. Has about a 7.2% yield.

For a cash account, is a better to have this, or ZPW.U, the US version? Depending on what you want that currency exposure to be, you might want to consider ZPH-T which is a hedged version. Either one of them is fine to hold. If there is a sharp, sharp correction over weeks, these are still going to protect you on the downside, but are still going to have a bigger shock to the downside. These are equity exposures and are not fixed income replacements.

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.

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

The best 100 companies with write-options 15% or so below market. If markets decline rapidly, you don’t get a lot of support from it. But if a decline is over 6 months you won’t see a lot of downside.

It is priced in US$ so you have currency exposure. Last year there was a lot of price decline due to currency fluctuation. This ETF is not risk free. If all the holdings in the ETF go down a lot there is a downside risk. Liquidity is not an issue for this ETF.

This writes Calls and Puts against 40 large cap US names, and that can generate a pretty nice yield. The yield is around 7% right now. This is just playing off the volatility, but it is really not designed to move anywhere, and should stay in a trading range for a very, very long time. You have to ask, are you looking for yield or are you looking for growth. If yield, that is fine. If growth, move on to something else.

A put write strategy on a 100 of the best US companies across all economic sectors. They have a pretty sustainable payout, but it is paid in US$. It is not hedged. They have filed a prospective on a hedged ETF that is similar.

Risk? An ETF that gives other investors the right to Sell its stocks. A Put writing strategy is very interesting, a little different from Covered Call writing. Put writing usually means you are holding cash, T-bills, etc. because you are on the sidelines. If the stock price goes down, you are forced to buy it at the Strike price if you are willing to own it. It is a way of collect a little bit of additional income while you have cash on the sidelines. The yield has been good, but the markets have also been good. It does expose you to a certain degree of risk.

It is not CAD$ hedged. BMO has filed perspective on a bunch of new ETFs and there should be one available in the next month that is the CAD$ hedged version of this. They net about 10% premium on the puts. About 3% is lost due to puts being exercised so you get an extra 7% over the performance of the stocks within the ETF. It is not risky and is exposure to the US market. (Your exposure should net a long position, if it ever got executed).

He loves this strategy as a low risk way to get exposure to the market. Write a put way below the market and take in the premium. 15-20% below market. It is diversified. It takes in about a 10% yield. They don’t want to own the stocks so if they end up buying them they sell and that costs 3%, making it a 7% return. You get that yield with half the risk of the market. Since recession is a real risk, this is a great way to hold the US market.

It looks at all great companies with good financials, but writes options on them 15-20% below market, constantly taking in option premiums and occasionally taking in the stock. They then sell the stock. It pays a yield of a little over 7%. It does well when markets are flat or sideways. It is a great diversifier in these uncertain times. He is the biggest holder in his funds. They are taking in a little over 10% in yield with puts offset by a little over 3% of capital loss for puts that are exercised. He does not think it will change too much from that range.