I recently came across the high dividend yielding ETFs like QDTE and XDTE. It seems like they buy an ITM Call and sell a 0DTE OTM Call to generate income. However, I do not seem to understand why so many youtubers, redditors, and people online are so hyped up about this ETF. Apart from the dividends it provides through its option selling strategy, it seems like its just a fund that implements PMCC strategy for you and manages it. I am seeing people talk about how they will retire on this and generate a stable and healthy income.
But surely there is a major downside to this strategy. I do not see them talking about it which is confusing me, because now I am wondering if there is something that I missed. If the stock market crashes like it did during COVID, won't these PMCC strategies fail and the ETF value will go down quite drastically. And then the question remains if the dividends paid out enough to make up for the crash which is hard to know because its doubtful the dividends are stable in the first place. Then the bigger issue is during the market recovery, since these ETFs are selling OTM calls, their upside will also be capped and they might miss out on the gains.
So why exactly are a lot of people so excited and hyped about for these high-yielding dividend ETFs?
Understanding Synthetic Covered Call ETFs
byu/Actual_Persimmon_964 inoptions
Posted by Actual_Persimmon_964
2 Comments
IMO, just hype, also, it’s not “dividend”, the funds are designed to capture “Premiums”
i doubt it will fail, but in the long run, it likely will not pay out as well as buy and hold.
when i first heard about qyld, i also thought it was really great because of it’s killer, constant dividend. it’s easy to be fooled.
then you do a comparison to buy and hold QQQ. and in like 12 years, probably less, QQQ beats it.
i think XYLD does the same 30DTE CC thing with SPY, and i’m pretty sure buy and hold SPY beats XYLD also. and i bet SPY will beat XDTE also.
heck, QYLD opened my eyes to high dividend stocks in general. i did a lookup on a few stock info sites. and then they started auto suggesting me all of these other ones i never heard of. so i looked at the info/details they mentioned on these other ones that had just……insanely high payouts.
they were just bonkers/insane not good in the long run. during covid times, they maybe had 1 or 2 years of 30% payout. but then the rest of their history was 1% payouts. or they had only existed for 1 year.
it was clear people could “make a high dividend stock with any premise, decide to pay it out at any rate”.
about the only one i really care about is SCHD.