Powershares BuyWrite ETF Archives - Arnold Solof https://arnoldsolof.com/tag/powershares-buywrite-etf/ A piece of my mind ... Tue, 01 Aug 2017 02:37:24 +0000 en-US hourly 1 https://wordpress.org/?v=6.9 https://i0.wp.com/arnoldsolof.com/wp-content/uploads/2017/08/cropped-633px-sq.jpg?fit=32%2C32&ssl=1 Powershares BuyWrite ETF Archives - Arnold Solof https://arnoldsolof.com/tag/powershares-buywrite-etf/ 32 32 129591407 PBP – A Buy-Write Strategy ETF https://arnoldsolof.com/pbp-buy-write-strategy-etf/ https://arnoldsolof.com/pbp-buy-write-strategy-etf/#respond Tue, 01 Aug 2017 02:16:25 +0000 http://www.arnoldsolof.com/?p=199 Investing in PBP can provide modest returns in a flat, rising, or even slightly declining market. PBP is the symbol for the Powershares (by Invesco) S&P 500 BuyWrite Portfolio ETF.  They classify it as an “Alternative – Hedged Equity”.  So for those unfamiliar with stock options, let me explain how Read more

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Arnold Solof

Investing in PBP can provide modest returns in a flat, rising, or even slightly declining market. PBP is the symbol for the Powershares (by Invesco) S&P 500 BuyWrite Portfolio ETF.  They classify it as an “Alternative – Hedged Equity”.  So for those unfamiliar with stock options, let me explain how this works.

First of all, an ETF is an Exchange Traded Fund.  It is something like a mutual fund.  It includes a basket of individual investments, stocks, bonds, etc. , depending on the purpose/strategy of the particular ETF.  This is like a mutual fund, except ETF’s trade like stocks;  you can buy and sell shares of them during the regular stock trading sessions, not having to wait for the close of day for a buy or sell order to transact.

The Buy/Write strategy  consists of buying shares of a stock and selling a call option on those shares at the same time.

A call option is an agreement that gives an investor the right, but not the obligation, to buy a stock, bond, commodity or other instrument at a specified price within a specific time period.  When you sell the call option, the buyer of that option pays you for it.  The money is yours to pocket at that time.  If the stock doesn’t rise, the owner of the call option generally will not use it and it will “time out” / expire.  You keep the money.  If the stock goes up and the option buyer calls in the stock , in addition to the money you made selling the call option (premium), you make a profit (The difference between the price you paid for the stock and the “strike price” specified in the call option you sold.

At one time I was going crazy, scanning for profitable options and doing buy/writes on each of those individual stocks.  This is a tremendous amount of work and very time consuming.  Also, the more profitable the buy/write was, generally the riskier the stock underlying the buy / write was.  Using a buy/write strategy, if the stock crashes, you get burned severely.
If you read the product details, you can see that it uses the buy/write strategy targeting to match the CBOE S&P 500 BuyWrite (index).  So, by investing in a huge basket of solid companies, the risk of getting burned by one company crashing is extremely small.  Also, there is no work to do.  The managers of the fund take care of all of that.  You just buy the ETF, and they do the rest.  Your returns are reflected in the share price of the ETF plus dividends they distribute.
This is not an investment to make a killing in the market.  But, at a time when money market and CD returns are rock bottom, it at least can give the promise of a reasonable return, with a lower than average risk.   Year-to-date return as of this writing is 6.69%.
However, if the market were to take a significant downturn, this ETF would drop too.  However, its drop would be blunted, at least, by the money it receives by selling the call options.

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