Volatility Brings Buy-Write ETFs Into Focus

Market volatility as measured by the CBOE's Volatility Index (VIX) has been on the rise thus far in 2015. Over the past couple of years, volatility has remained relatively tame as the market was marching upward in almost a straight line. In the 4th quarter of 2014, up until now, volatility has increased with much more movement on a regular basis. This comes right around the time of falling oil prices, weakness in several Eurozone countries, and high political tensions.


Investors looking to maintain exposure to the equity markets, but also looking to protect themselves on the downside, might find solace in buy-write ETFs. These are the products that buy equity shares while at the same time write covered calls on those positions in an attempt to boost income and total return. These funds tend to underperform in rising markets as calls tend to get exercised limiting the overall upside potential. But they tend to do better in sideways or down markets as managers can let out-of-the-money calls expire and collect the premiums.

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