The Future of Investing: Alternative Hedging Investing!

Driving the change and demand for accessible alternative investments was the 2008 market crash and the three years of ensuing volatility. It became obvious that relying solely on the wait-for-growth approach, also known as a long-only approach, was a mistake. Even with a well-rounded stock portfolio, analysts realized long-only investing placed investors’ wealth at too much risk.

Today, while the market volatility is not near the levels of 2008/2009, returns remain depressed and alternative investments provide a new vehicle for higher returns not tied to traditional equity markets.

Do You Need A Covered Call ETF?

Investors are taking a renewed interest in a strategy abandoned during the recent recovery; the covered call. A covered call consists of going long on an underlying security while selling call options on the same underlying security. This has the effect of generating additional income (the premiums received from selling options), which helps to offset some losses when markets are falling. When markets are rising, however, the call options sold can come “in-the-money,” offsetting gains generated by the long position in the underlying security. ETFs employing the covered call strategy have lagged behind traditional beta funds as markets headed higher, but have sharply outperformed the broad market during the recent period volatility and declining equity prices. 

Covered call strategies can also pair a long position with a short call option on the same security. The combination of the two positions can often result in higher returns and lower volatility than the underlying index itself.