BMO Dow Jones Indus. Avg. Hedge ETF (ZWA.TO)

(A Top Pick September 17/12. Up 9.12%.) Only 50% of it is hedged with options, the rest of it is open.

Covered Calls work in such a way that if you have a stock that is trading at $20, you can sell a Call, which will bring in some money and you will be obligated to sell the stock at a particular price. These work great in trendless markets but do not work great in rising markets or rapidly declining markets. It we anticipate that the market ahead of us is going to be dead flat, covered calls are the place to be. If we are looking for a downtrend in the market, No. You are limiting your upside and you are increasing your downside.

Likes it and has quite a bit of it. Written calls on 30 dow stocks individually. Yields are pretty good. Quoted yields are based on last couple of premiums but if markets goes down, so do you.

Big, diversified Dow is the way to play. 5-6% range because of covered call strategy. Wait for a pullback to put money to work.

Likes this one because they write Calls, not on the Dow index, but rather on all 30 of the stocks in the index. This gives you much better Call premiums because individual stocks have much more volatility than basket of stocks. Also, they are not always 100% invested. They make a judgment call and currently there is roughly 50% invested, so that if the Dow does run up, you are not completely Capped off by the Covered Call. Also, gives you access to getting capital gains out of the US market.

Likes American markets but has been using more of the SPDR stuff like the S&P 500 rather than Dow Jones. On covered calls you have to be a bit careful because he is expecting the market to do incredibly well and although covered calls will do well, you keep getting called out. Covered calls work best when you think the market is going to go sideways.

Believes that this is taking the 30 stocks in the Dow Jones and is writing Call Options against the individual stocks. If this is so, the risk is that you have a portfolio manager writing against a portfolio of stocks, which are diversified so there will be securities in there that are moving in different directions. He has issues against writing Calls against individual stocks in a portfolio. Options market on stocks are pricing in the risk associated with A) the market and B) with the company specifics unique to that stock. In a diversified portfolio, you have stocks going up and down. If you are writing options against all the stocks in the portfolio, you are losing your best performers at a point in time in the ones you are losing on of the ones you are keeping. Read your prospectus very carefully on this first.

Covered call on every DOW component, not on the index. Likes this even though he is bullish on the US.

Hedged to the Cdn$ so you don’t have the vulnerability if the US$ gets clobbered. They are selling Calls against “all” of the Dow stocks so you are getting a better return than if you are just selling the Dow index. Yield is probably around 6% but it doesn’t necessarily mean you are going to get it. While he is not wildly optimistic, he expects to see a market that is going to be churning around and by doing the Covered Call overly on the Dow he is getting a nice return.

Covered calls with dividends plus growth. Pays about 6.2%. Because this is the Dow, you are looking at only 35 stocks. Doesn’t like the methodology for the index and he would rather have more names.

This is writing options against stocks in the Dow Jones Industrial Average and is hedged back to the Cdn$. The issue he has with this is that when you have a broad index, and you are writing options against all of the stocks, you get called away with your best performers and you tend to hang onto the laggards. This is a harder way to write options against. The sector plays that they have are very interesting.