Investor flows into income-focused equity fund SPYI have gained momentum in the second half of the year as equity performance faltered [c1a410ab]. The fund seeks to provide higher income through call options and actively manages them to capture gains or minimize losses. The options used are index options, offering tax advantages as Section 1256 Contracts [c1a410ab].
Selling covered calls against stock positions is a solid options strategy that can provide a security blanket for investors who are nervous about stocks [98fb11a5]. This strategy involves selling covered-call options against stock positions to generate income and dampen portfolio volatility. Barry Martin, manager of the Shelton Equity Income Investor fund, shares three guidelines for selling covered calls: stick to quality names, keep the timelines tight (around 45 to 60 days), and sell options just a little bit out of the money (around 7%-10%) [98fb11a5].
Martin's top 10 fund holdings include Apple, Meta Platforms, Amazon.com, and Alphabet [98fb11a5]. Selling covered calls carries the risk of missing out on upside if the stock shoots up, and the income generated is taxed at a higher rate than dividends or long-term gains. However, the strategy can be used in tax-protected accounts like IRAs to mitigate tax implications [98fb11a5].
The Madison Covered Call and Equity Income Fund follows a covered call strategy, sacrificing upside growth potential for downside protection [195ce063]. The fund's individual equity positions lagged relative to the S&P 500 index in the first quarter of 2024, which had a strong performance, gaining 10.6% [195ce063]. The fund remains defensively positioned and aims to protect capital in an increasingly risky market environment [195ce063]. The fund's investment strategy letter highlights the risks in the stock market, including high valuations, concentration in a few stocks, and the potential for a market correction [195ce063].