Weird ETFs To Buy #4 — The PowerShares S&P 500 BuyWrite ETF
Butterflies, condors, collars & spreads aren’t exactly everyday investing terms. And given that, many investors feel that options strategies are just too complicated for their portfolios. That’s a shame, as options can be a powerful tool to manage volatility or generate income.
For looking to benefit from that higher income and lower volatility, the PowerShares S&P 500 BuyWrite ETF (PBP) is a compelling fund. PBP makes writing covered calls a snap. Essentially, a covered-call is an investment tactic where the investor buys a stock or a basket of stocks tied to an index and writes call options — which gives another investor the opportunity to buy the stocks at certain price. The advantages of this are that the option premium cushions downside moves in an equity portfolio.
PBP holds all the stocks in the S&P 500 and then writes options on the index. In bear, flat or slightly rising markets, PBP should outperform the index. So far, this year that has been true. PBP has managed to nearly double the performance of the S&P 500 — all while yielding 6.41%.
But be advised: PBP has a very low average trading volume, so it may be subject to the same volatility that it seeks to offset.
Expense for PBP run 0.75%.