Generate Income Like The Pros

| March 6, 2013 | 0 Comments

prosThe Fed’s ultra low interest rate policy is making it tough for investors to generate income.  With short-term rates at close to zero, Treasury bonds, savings accounts, money markets, and certificates of deposit just aren’t cutting it.

For example…

5-year CDs are paying a ridiculous 0.84% on average right now.  That’s right, banks are asking you to lock up your money for five years in exchange for a return of less than 1% on your money.

That’s painful if you need to live off the income your cash can produce.

But the really sad thing is this rate looks pretty good when you compare it to an old fashioned savings account.  The national average rate on a savings account is a paltry 0.21%.

At that rate, you would earn a whopping $210 in interest on a balance of $100,000!

Like I said… these rates just aren’t cutting it.

As a result, many investors have turned to dividend paying stocks, high-yield bonds, real estate investment trusts, and other similar investments to get the yield they need.  If you count yourself among this group, then keep reading.

ALPS Advisers has just launched a new ETF that allows you to generate income just like the pros without all the hassle.

At the end of last month, ALPS launched the US Equity High Volatility Put Write Index Fund (HVPW).  The fund gives investors an opportunity to generate income from the selling of put options on select, large-cap US stocks.

Like any ETF, HVPW tracks a specific index.

It attempts to replicate the performance, before fees and expenses, of the NYSE Arca US Equity High Volatility Put Write Index.  This index tracks a portfolio of exchange-traded put options on a selection of the largest US stocks that have listed options and the highest volatility.

Here’s how the fund works in a nutshell…

HVPW will sell 60-day listed put options every 2 months (6 times per year) on 20 stocks.  At the end of each 60-day period, the fund will make a cash distribution equal to 1.5% of the fund’s net assets. 

The fund intends to make distributions from net investment income and short-term capital gains.

In other words, HVPW attempts to generate income by keeping the premiums it receives from selling put options.  It focuses on large stocks with high volatility because higher volatility stocks have bigger premiums.

Now, put selling is a fairly complicated strategy.  The average investor probably doesn’t have the knowledge or time to implement this type of strategy successfully.

But thanks to ALPS, you now have a simple and convenient way to incorporate a put selling strategy into your portfolio.  And it will cost you less than 1% per year to do it.  Take a closer look at HVPW to see if it’s a good fit for you.

Profitably Yours,

Robert Morris

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Category: Bond ETFs, Dividend ETFs, ETFs

About the Author ()

Wall Street veteran and ETF specialist Robert Morris helped created ETF Trading Research in order to help investors get the most out of their ETF investments. Before creating ETR, Robert worked for a number of prestigious Wall Street firms such as Salomon Smith Barney, UBS, Hyperion Financial and Charles Schwab.

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