Weekend Reading – Covered Calls Edition

Weekend Reading – Covered Calls Edition

Hey Folks!

Welcome to a new Weekend Reading post: the covered calls edition.

You can find some recent posts below before I get into my headline subject!

Wow, are these really the costs to raise children???

Weekend Reading – The costs to raise children

And…I recently posted my approach to keeping cash on hand, prior to semi-retirement and why I believe some form of a cash wedge is important to consider during retirement. Your mileage can always vary of course depending on your dependable income sources!

The Cash Wedge – Managing market volatility

Weekend Reading – Covered Calls Edition

My goodness, there are just so many ways to invest!

As passionate readers of this site know by now, I/we employ a two-pronged, hybrid approach to investing:

  1. We own a number of Canadian dividend paying stocks for income and growth, you can read more about that on the dedicated My Dividends page here.
  2. And, beyond a few U.S. stocks, we continue to invest and own low-cost ETFs for extra diversification. I also have a dedicated My ETFs page for that.

By investing the way we do, we feel we get the best of both worlds:

  • meaningful income, now, today, if we wanted to use it via dividends and distributions, and
  • our collection of stocks and ETFs also delivers price appreciation over time, ETFs moreso, providing growth. 


But certainly some investors invest very differently to meet their goals. I’ve mentioned that many times before on this site and I also mentioned as much during this recent TD webinar – stay tuned, recording to follow!

(In this recent webinar, I joined Adrian Starinieri from Passive Income Investing, and Henry Mah from Your Ever Growing Income to discuss the potential benefits of dividend investing as a way to build wealth compared to other investing strategies. I shared what works for me/us as a hybrid investor and how it likely differs from both Adrian and Henry.)

Oct 12 - Three ways to build wealth with dividend investing

Using covered call strategies or at least covered call ETFs to juice income has been a very alluring income investing approach for many DIY investors. That’s good, to a point but to each their own since lots of financial engineering is involved. 

Here is the covered call strategy in a nutshell:

  • Call options are financial contracts.
  • The contracts give the buyer the right, but not the obligation, to purchase a security at a set price.
  • This set price is called the strike price.

A covered call gives someone else the right to purchase stock shares you already own (hence “covered”) at a specified price (strike price) and at any time on or before a specified date (expiration date).

So, covered calls can potentially earn income on stocks you already own.

Of course, there’s no free lunch: your individual stocks could be called away at any time during the life of the option.

The takeaway: financial markets do not give out free money!

Covered Call Risk Profile

Source: Investopedia.

You don’t have to perform covered calls with individual stocks of course. You can own funds/ETFs to do the heavy lifting for you. Those also come with caution IMO since any active money management comes with higher fees passed onto the customer. 

Pros and Cons of Covered Calls / Covered Call ETFs

I’ve written about what I think about covered calls on my site before.

I don’t practice this approach nor do I ever intend to. 

While there is the income upside to be had and that has major appeal to many, there are just too many drawbacks and variables for me since income/yield and price appreciation is always two-sides of the same investing coin.

Sure, some covered call ETFs offer great income but the total returns could be flat.

Case in point below. I know some covered call income investors have touted this covered call ETF below. Why not just buy and own the index instead?

QQQ vs. QYLD Covered Call ETF

Source: Portfolio Visualizer (disclosure: I own QQQ (blue line) and not QYLD).

As this Globe and Mail article so kindly expressed (subscription):

“Covered call ETFs create an alluring image of high income and low risk, but these perceived attributes are a sleight of hand in financial product design. The final blow, in my view, is their high fees and costs and unfavourable tax implications.”

Yes, there may be tax advantages to this investing approach within tax-deferred accounts specifically, and these strategies could be useful in flat or down markets, but last time I checked the stock market tends to go up more than down otherwise people would not be investing in it. 😉

Personal finance and investing is personal – make sure you figure out your plan, your “whys”, your investing goals and any related investing risk.

More Weekend Reading…

Yes, the 2023 Canadian Financial Summit is coming next week!

Yup, here it comes!

Once again, I’m honoured to share the virtual stage with 35+ Canadian experts for this Summit.

2023 Canadian Financial Summit

This virtual Summit continues to cut through the fog and noise of confusing financial jargon to help build your confidence needed to seize control of your personal finances. Each speaker has their own expertise to share. With their actionable words of wisdom, all speakers are here to support your money management and wealth-building progress in one spot!

Here is what you can expect this year:

  • How to plan your own retirement at any age
  • The Pension Paradox: Lump Sum vs Cash for Life
  • How to save money on taxes by optimizing your RRSP to RRIF transition
  • Plan your personalized combination of a DIY portfolio alongside an annuity for a customized stream of retirement asset growth + monthly income.
  • How to maximize the new FHSA (First Time Home Savings Account)
  • How to adjust for high interest rates in your portfolio and day-to-day life
  • How to efficiently transition your investing nest egg to a steady stream of retirement income
  • What Canadian real estate investments looks like in 2023
  • How to deal with inflation on your bills and in your investment portfolio
  • The best Canadian personal finance books of all time!
  • When to take your OAS and CPP
  • Travel for free with Canada’s loyalty rewards programs

Together, the entire panel of speakers have authored more than 100 personal finance books, hosted 600+ podcast episodes, written 20,000+ blog posts and newspaper columns, and have been featured in thousands of media articles and interviews from every news and financial publication in Canada.  

How to Check Out The Canadian Financial Summit

In order to reserve your tickets, click this link and check out my talk!

When the Summit starts, you’ll be sent an email each day with the link to the sessions that go LIVE for the next 48 hours.

That’s it. There’s no paperwork. No need to put in payment information that you have to cancel later. No worries.

This year’s Summit kicks off with a webinar on October 18th and once again, is absolutely FREE to view for that weekend.

If you want to check out the videos after the free window has passed (and get access to a whole smorgasbord of bonus resources and video sessions) then you’ll want to sign up for the low-cost All Access Pass.

A reminder not to miss out on the Early Bird Pricing, as the price jumps up as the Summit begins so register early…

How Do You Sign Up?

Again, click here and sign up and the folks at the Summit will get you ready to roll. 

P.S. A BIG thanks to all of you who have shared this event with your friends and family since I’ve been doing my own Summit talk some six+ years ago! 

In other reading news and links I’ve been checking out…

Bob Lai (Tawcan) shared some investing failures to help pay it forward to others. A nice read.

So true:

“The stock market is the only market where things go on sale and all the customers run out of the store….” – @cullenroche

Globe Investor columnist and DIY investor John Heinzl is continuing to buy Fortis while this dividend growth darling is still cheap (subscription)

Dividend Growth Investor remains a huge fan of Warren Buffett, the Oracle of Omaha.

“His letters to shareholders are an excellent resource for students of value investing. I’ve studied his strategy, investments and his work, and believe that Warren Buffett is a Dividend Growth Investor in disguise.”

Last but not least, here are three great considerations: how to decumulate assets in retirement including lessons learned from real retirees!

Have a great weekend!


My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

14 Responses to "Weekend Reading – Covered Calls Edition"

  1. We own one product that uses covered calls and leverage quite a bit and that is the Class A shares of the split fund ENS.

    What convinced me this one fund had some value was it’s consistent beat on ENB, which is the only equity that split fund invests in. I like the “juiced” distribution for sure, and it’s on a DRIP. I realize that when it comes time to take the income instead of reinvesting it, it is likely it will not keep pace with inflation, but it will help with the go-go years.

    Looking at the chart it has fallen quite a bit more sharply than ENB of late and so I may consider rebalancing the portfolio – that will likely drop my dividend income but I won’t leave my head in the sand – I agree that total return is most important.

    I do worry about the numbers of people getting enticed by the Horizon’s and Harvest’s of the ETF space (and also some of the shameless promotion that is going on by several YouTube bloggers). I think there is room in a portfolio for some of these, but to to go “all in” on these high distribution products is not my idea of a good retirement plan.

    1. I’m not totally against covered call ETFs, I see why folks own them, I just don’t invest in them myself. 🙂

      If I did invest in covered call ETFs, I would likely limit to 5% or so of my overall portfolio – aligned with my 5% or so rule whereby I try to avoid any one stock dominating the portfolio. I am fine if low-cost ETFs like XAW, are more than 5% of the portfolio and it’s approaching that now – to gather returns beyond Canadian borders.

      Lots of ways to invest to reach your goals as you know – some approaches suit others just fine! All good.

  2. One of my investment rules is don’t invest in anything I don’t understand. Covered calls I just don’t get. Hence won’t buy. There are plenty of investments I understand to invest in. I look at thing like covered calls more as gimmicks for the supplier to make extra money on than anything I can do well on.

  3. Mark,

    I totally agree with you re: Covered Calls. While I may like them for short-term investment (more for a learning experience), in the long run, knowing why I’m holding a high-quality equity or fund, and not worrying about the day-to-day ups & downs is how I prefer to invest in the market. The same goes for my clients.

    If there’s a live link to your TD Webinar with Henry and Adrian, please share it. As TD’s site now longer allows us to register and watch it.
    Thank you!

    1. Thanks, Ash. I think they have merit for some but for now, I’ll pass on covered calls or covered call ETFs.

      Link should be available later this week!

  4. Hi Mark: Like Dividends On I’m not a genius mathematician I can just make money. Some people are in oils, some are in real estate while others are in options but I prefer blue chip dividend stocks. I have a covered call but it is as an ETF. A guy I know in is into covered calls and I asked him about them but it sounded to confusing so not for me. Dad always said to stick to your own knitting which I have. Sometimes I have wandered and have paid for it but that is part of learning. I always thought the market was high and so didn’t invest until now as some stocks have come down to a range were the yields are hard to ignore so have bought some ( BCE, TRP and ENB). As such I still have a large cash wedge. Mark why would anyone want to decumulate cash in retirement. I thought the main thought of investing was to have enough money to live easy in retirement. The only decumulating I do is at tax time when I have to pay quarterly instalments.

    1. Sticking to your own knitting is a good phrase – that can apply to a lot in life! 🙂

      Currently DRIPping all ENB, BCE and TRP here, so effectively buying more.

      I would love to be in your position to pay quarterly installments all the time! Ha.

      Have a great weekend,

  5. Back in the early 80’s, I used to go to the reference library to read “Beat the Market: A Scientific Stock Market System” by Edward O. Thorp and Sheen T. Kassouf. Luckily for me, I was arithmetically challenged so I’ve kept far away from using options since.

    Over forty years later I’m happy to embrace simplicity and just buy and mostly hold individual Canadian dividend stocks in the non-registered account. For the registered accounts it’s all in a couple of global index ETF’s.

    1. Awesome. Basically our approach too: many CDN stocks in taxable, TFSA, RRSPs (about 26 at least count) and then beyond a few U.S. stocks have gone the low-cost ETF route. Very simple approach actually!

      Have a great weekend,

  6. As a long time options investor, I can attest to both the benefits and potential pitfalls of using options as part of one’s investing portfolio. Using options can certainly supplement your income and can actually help reduce the risk exposure of your portfolio to some degree; however, I would say that it takes some time to learn to use them effectively and it does require some active attention. You also need to stay within your means and don’t get greedy because it can be very tempting to overextend yourself after a series of successes and that could lead to big trouble.

    Personally, I love constantly watching my portfolio and deploying option strategies on a weekly basis, but I realize many investors prefer not to have to monitor their investments and would rather set it and forget it. Everybody has their own investing style and preferences. Like anything else, if you are willing to put in the time to learn how options work, you can make them work for you and they can definitely boost your returns.


    1. Very happy to hear from an options investor, Henry. I appreciate your comment since there are many ways to realize your investing goals – everyone has their own preference and style.

      Enjoy the weekend,

  7. I plan to watch when the video goes up – I still can’t wrap my mind around covered calls. Adrian seems to have it figured out, but because I don’t understand it, I won’t partake. Kanwal Sarai’s Rule #1 is if you don’t understand it, don’t invest in it. I’m a believer in that!

    1. Fair point, Sandra. It was a nice chat with those guys. I look forward to your feedback when the video is up sometime next week. I will link to it of course!


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