"Synthetic Bonds"
So you see where interest rates are right now. How can we earn an annual yield of 10%...and do it safely?
Not as hard as you might think.
There are several ETFs out there which do certain things to generate substantial dividends which can average around 10% annually.
Most of them accomplish this by frequently selling call options against varying amounts their equity portfolios to generate income, which is then paid out to their investors each month as dividends. These dividends generally also have significant tax advantages.
This process of selling calls generally limits...but does not completely eliminate...the upside potential of the ETF PRICE. If the S&P 500 goes up, say, 20% in a year, the PRICE of the ETF itself might only capture 60% of that, or 12%. (But the dividends keep flowing!)
On the other hand, if the S&P 500 should decline, the market PRICE of the ETF will often fall just as much. (But again, the dividends keep flowing!)
So...while the ETF may pay out nice dividends, it's market price has limited upside potential and very definite downside risk. The dividends might cushion things a bit in a crash, but the ETF market PRICE could still suffer dramatically.
So the challenge is...how do we create something that will allow us to collect those 10% yielding dividends without having to worry about the market risk?
We do it by creating a "collar" around the ETF which will effectively give up most or all of any price appreciation the ETF might earn...in exchange for protection against against any likely decline which may occur.
The result will be an ETF/collar package that keeps generating those dividends yielding 10%, while experiencing little or no volatility!
A "SYNTHETIC BOND" if you will!
This "bond" can then be held strictly as a reliable source of high yield INCOME...or it can be used to replace the T-bills in the old strategy of decades ago...outlined on the previous page...which allows investors to own the S&P 500 without downside risk!
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Details: cyberterrys@hotmail.com