Actively Managed Model Portfolios

Stock Rental Business Enhanced Yield Model Portfolios

Canadian –  A sector diversified dividend income portfolio selected from the top holdings of the BMO Canadian Dividend ETF
U.S. – A sector diversified dividend income portfolio selected from the top holdings of the iShares Core High Dividend ETF

Objectives

  • increase or decrease the weighting based on risk
  • add covered calls to enhance return
  • strategically add protective puts for a hedge if it is warranted

Exchange Traded Fund Actively Managed Model Portfolios

The Optionsource Canadian Dollar and U.S. Dollar ETF Portfolio is designed to apply our Macro Intermarket Analytics to actively change the asset mix of a standard investor ETF portfolio. In our quest to create alpha we can actively at any strategic times do any of the following:

  • increase or decrease the weighting to an ETF
  • add covered calls to enhance return
  • add protective puts for a strategic hedge

This is a “Must Learn” for anyone who owns stocks. The Stock Rental Business philosophy  is focused on conservative and consistent portfolio income with covered calls on some of the best U.S. and Canadian securities. We have helped our stock holding members generate outstanding returns both inside and outside their registered accounts through our Stock Rental Business portfolios.  Our members also attend our Portfolio Analytics Tutorials weekly. These tutorials provide insight into current positions, why the alerts were sent and how to consistently generate cash flow. Join the event live (online) and/or watch the recording at your convenience for review.

Covered call writing consists of selling call options against your existing stocks. To implement the strategy, you first must own the shares of an optionable stock and then sell 1 call for every 100 shares you own. In taking that action, you get paid cash upfront for giving someone else the right to buy your shares at a specific price over a specific time.

When you combine this strategy of Covered Call writing with owning companies with good upside potential, you create an effective way to generate consistent cash flow from the stocks you own, a way to reduce the cost base of your investments and a way to ensure your money is always working for you.

So let’s apply this strategy to the iShares CDN Large Cap 60 index Fund (XIU). In this example, the XIU is trading at $12.50 a share. Through your analysis, you are anticipating the market to be range bound for the next 4 months. With an upside range of $13.50, our objective is to generate some income while we wait for the markets to turn around. So when we look at the 4 month $13.50 covered call, it is bidding $0.55 cents per share. If we purchased 1000 shares of the XIU at $12.50 dollars it would cost us $12,500.00. We then sell 10 calls against the XIU shares and generate $550.00 cash flow income. That $550.00 represents an upfront 4.40% guaranteed cash flow.  Real money that you made today! We got paid that cash, because we are giving someone the right to buy our XIU shares at $13.50 over the next 4 months.

Let’s look at the different outcomes – We originally purchased 1000 shares at $12.50 for a total of $12500.   We then sold the 10 calls and generated $0.55 cents a share or a $550.00 cash flow creating a new reduced average cost of $11.95 or for a $11,950 net debit.

If the XIU was to have rallied above the $13.50 level by the end of the 4 months, then your shares will be assigned and you will sell your shares at that $13.50 strike price or $13,500. That represents a $1550 profit over your adjusted cost base, representing close to a 13% return in just 4 months!

Alternatively if the XIU is anywhere below the $13.50 price at the end of the 4 months, you will continue to own the XIU shares while getting to keep the 4.40% cash flow. Once the written calls have expired, you are now free to write new covered calls.

To summarize, covered call writing is an excellent and conservative strategy to generate consistent cash flow in a portfolio. There are many different approaches to this strategy included in our alert service.  We adapt our approach to current market conditions and best of all covered calls are eligible in registered accounts.