Hello everyone, One criticism I frequently see on this platform about income investing, particularly covered-call ETFs, is that investors sacrifice gains once the underlying stock rises beyond a certain point. It feels counterintuitive. Yet, my observations seem to challenge that assumption, at least over shorter periods. In the attached screenshot, $AMD was up 8.80% as of 3:44 p.m. ET today, while $AMDY was up 12.95% at the same time. If covered-call ETFs cap upside participation, how can AMDY beat its underlying stock today? I'd genuinely appreciate an explanation from anyone familiar with the mechanics behind this. Cheers, A.
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28 Comments
Hugo Leblanc@hugoboss123 · 57m
Nothing beats getting paid every month and not selling any stocks. Who cares what they do…
Kar Yung Tom@karyungtom · 43m
Angelo, since you seem genuinely curious, I’ll share my perspective. A one-day comparison tells us very little about the long-term trade-off between a covered-call fund and its underlying stock. Over short periods, either can outperform for several reasons. In this particular case, TSX-listed AMDY also uses approximately 25% leverage, so comparing its daily return directly with AMD is not an apples-to-apples test of whether covered calls cap performance. More generally, if I expected an investment to appreciate substantially over a long holding period, and my goal was maximizing total return, I would normally prefer the underlying. A covered-call strategy exchanges some potential upside for option income and a limited downside cushion. Over a sustained bull market, that sacrificed upside can compound into a meaningful opportunity cost. That is why, for what I am doing, buying the broad market and holding it for 25 years, I would choose a plain vanilla broad-market fund rather than a covered-call version. That does not mean the underlying must outperform over every period. The result depends on the stock’s path, volatility, call strikes, percentage of the portfolio covered, leverage, fees, and taxes.
Kar Yung Tom@karyungtom · 50m
$AMDY has 25% leverage, so it's not a direct comparison.
Jonoosh @jonoosh · 53m
TSX (which is where AMDY is traded) was closed yesterday for a holiday but the US market was open. So the change for AMDY is a combo of movement from yesterday and today.
rob @thatguyrob · 56m
Amdy has leverage. I think it's 25%.
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