I stumbled into a new option income fund with the Peerless Option Income Wheel ETF (WEEL). This graphic explains the strategy.
It started trading this past spring and does not stand out as being particularly bad or good.
As of last Friday, it owned just just two ETFs, an oil services fund and a semiconductor ETF. For now, it is mostly short put options on ETFs. I am writing this post late in the day on 10/11 and most of the puts show expiring today. I sampled a few of them that all appeared to be about 5% out of the money.
The chart compares WEEL to ProShares S&P 500 High Income ETF (ISPY) which I own and sells daily call options, XYLD is the Global X S&P 500 Covered Call ETF which sells monthly call options, WDTE which sells daily put options and used to have symbol JEPY, not to be confused with JEPI from JP Morgan and the last item on the chart is just the S&P 500. WEEL at first glance is more of a put selling strategy which is why I threw in WDTE. The decline in WDTE isn't just about the dividend. Portfoliovisualizer has that fund down 10.05% on a total return basis through Sept 30th.
WEEL should not be expected to be a proxy for the equity market. It has had a much lower return thus far and a much lower standard deviation. That it won't keep up with plain vanilla equities is not a bad thing if holder realizes this ahead of time. It has paid one $0.60 dividend so far and while the dividend could be lumpy going forward, it looks like it will pay quarterly and extrapolating the $0.60 payout the fund could yield 11-12%. The attributes of lower volatility and much higher yield have a spot in a diversified portfolio but again the expectation is that this is not a proxy for the equity market.
The risk of selling volatility this way is that the market gets hit either with a fast decline like the 2020 Pandemic Crash or a slower large decline like in 2022 causing the short puts to get assigned. As of Friday, WEEL was short puts on the Van Eck Semiconductor ETF (SMH). SMH closed at $256, the puts are struck at $235. SMH has 20% allocated to Nvidia (NVDA). If something hideous happened to NVDA that took down the whole group then the fund might have to pay $235 for an ETF trading at $210 as an example.
If WEEL sells puts on ETFs and not individual stocks as it appears then I don't think there could could be a catastrophic outcome like down 70% in a down 25% world but in trying to frame this out, down 30 or 35% in a down 25% world seems within a normal distribution of outcomes. I saw plenty of down 70% in a down 25% world outcomes during the popping of the internet bubble when individual internet stocks were cutting in half or worse, very quickly. That's not a likely worse case scenario for the types of ETFs WEEL owns but I suppose it's not impossible. To be clear, WEEL doesn't use leveraged funds, YieldMax funds or other funds like that which can blow up.
Pivoting, the Wall Street Journal had a very short interview with Alicia Munnell as she retires from the Boston College Center for Retirement Research at age 82. Munnell along with Teresa Ghilarducci are like the aunties of retirement which I am saying in a positive way. They don't really talk much about bottom up retirement planning, more like big picture, how to fix the system, top down retirement issues.
There was an odd thread from her. "Like many people, she lacks the time and interest to manage money, she says." Her son works in the industry and helps her every so often. "'If I had to figure out what to invest in, I’d have no clue,' said Munnell. 'People have busy lives. Retirement planning should not be something they have to put a lot of effort into.'” I'm sorry but what?
I have trouble believing she is that checked out. She would have no clue? Really, none? Put it in a balanced fund and leave a year or two's expenses in cash. That would not be optimal in my opinion, but certainly valid. People shouldn't put effort into retirement planning? What does that even mean? How does someone from the BC Center for Retirement Research, someone from any center for retirement research believe something like that?
Even people who seek out help from an advisor need to engage and make some decisions. In general, the more effort people put in to something the more they will get out of it. What sort of retirement output do you think you'll get not putting much effort into your retirement? If the article correctly captures what she is saying, it is absurd. As Joe Moglia said, no one will care more about your retirement more than you.
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