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BMO Covered Call Canadian Banks ETF (ZWB)
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BMO Equal Weight Banks Index ETF (ZEB)
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Hamilton Canadian Financials Yield Maximizer ETF (HMAX)
Also I have always wondered just how much difference in performance { percentage } there would be between these three products { ZEB. ZWB out of the money calls, and HMAX in the money calls } . In the case of a 10% correction in the financial sector and also in the case of a 10% rise in the financials. Please speculate on what you would expect the return percentage for each . { you will have to speculate for HMAX because of its short history and supposed lack of volatility due to the use of in the money calls } This will help me grasp what to add or subtract to that 14% dividend for HMAX under the two scenarios ......
Yes, that number sounds about right. HMAX holds Canadian banks and writes covered calls. This strategy works best in a sideways market. During times of rally, such an ETF can cap potential gains. We are okay with this strategy as long as the risks are understood. These strategies are also sought out by income investors.
Generally, In-the-money calls would gain a higher premium compared to out-of-the-money calls. This could drive a difference in yield. Out-of-the-money calls would have a higher ceiling on potential gains compared to in-the-money calls. In case of a 10% move up, in-the-money calls would likely get called and overall gains capped. So in-the-money calls would likely yield less than 10% (of course it also depends on the premiums collected). In comparison, out-of-the-money calls would allow the fund to realize some of the stock gains (and of course premiums would also be lower). In aggregate, the total move cannot be definitive and changes as per the premiums. We like ZEB for equal weight approach. When it comes to a 10% correction, in-the-money calls would be better off given the 'higher' premiums collected. Calls would likely not be exercised in a correction scenario.
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in ZWB.