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Covered Call Monthly Income during a Market Crash

Covered Call strategy for consistent monthly income while boosting yield within the Healthcare sector.

Standard Deviation Table of Covered Call Portfolio

Across many of our own investments, we use derivatives strategically to provide us with a hedge all while producing a high yield and consistent income. The following shows an example of that within our allocation to Healthcare that:

  • Provides exposure to Large Cap names within Healthcare industries
  • Provides high and consistent monthly income relative to benchmark indeces
  • Reduces volatility relative to benchmark indeces
  • Is equal weighted

During the Covid19 crash, our investment income was uninterrupted which provided us with sufficient liquidity to strategically deploy aside from weathering the storm.

Chart of Covered Call Portfolio vs. Benchmarks
Covered Call Portfolio Holdings and Analysis

In summary, the use of financial derivatives within a public equities mandate can produce effective risk management results. Unlike commercial insurance, which is more suitable for investees on which investors take board seats, financial insurance can be used within a passive investment strategy. In fact, investors can outperform on a total return basis with the use of financial insurance. That said there is a trade-off between pursuing risk management, a high yield strategy, or a total return strategy and that would all depend on the investor's goals and how financial insurance is structured around such goals.

For example, selling a call option on a particular stock, also known as a covered call strategy, would yield different results depending on the call's strike price compared to the stock's market price, expiry, and volatility. The percentage of call options sold on a portfolio of stocks would also impact results. It is therefore prudent for an investor to start with their goals and then choose the types and quantities of financial derivatives that would be more suitable for them to reach their goals.

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