Option Jack Warns Against Chasing 20% Yield Covered Call ETFs as HSI May Test 23,000
SingTao · 1 SOURCES1 day ago5 MIN
Summary
Covered call (備兌認購期權) ETFs that once attracted massive investor interest with promises of 18-20% dividend yields and monthly distributions are now facing sharp criticism from veteran market participants. Option Jack, a seasoned options trader with nearly four decades of market experience dating back to his pre-1987 crash trading floor career, has dissected the structural flaws that have caused these products to underperform significantly.
Key Points
- The most popular H-shares covered call ETF has plummeted 23% over the past year, underperforming traditional H-shares ETFs and creating a "earn dividends but lose on price" trap
- These ETFs purchase HSI constituent stocks, HSI ETFs, or HSI futures, then sell covered calls; rollover occurs one day before expiry (August 27 for August 28 settlement), with strikes kept relatively close to market prices
- In June, when the HSI fell below 23,000 and HSI China dropped to 7,460, the short call strikes limited gains to just over 1% when markets rebounded in July
- By July, with the HSI reaching 25,800 and HSI China hitting 8,600, the same dynamic restricted gains to approximately 1%, and August's 1% decline in HSI China left investors with zero returns
- For a HK$1 million portfolio, Option Jack would allocate HK$200,000 to 10x leverage Tencent bull-bear certificates and HK$800,000 to fixed deposits
- For medium-term positioning, he recommends 65% Hong Kong stocks (focusing on ATMJ mega-caps), 25% US stocks (favoring Dow components over tech), and 10% Bitcoin targeting US$100,000
- He predicts the HSI could test 23,000 in October if the current decline extends, noting that over the past decade, annual highs and lows appeared in January in seven out of ten years
Why It Matters
As covered call ETFs continue to hemorrhage capital amid rising interest rates and market volatility, Option Jack's analysis exposes the hidden risks of yield-chasing behavior among Hong Kong retail investors, while his market timing predictions for potential lows in September-October could influence how local investors position their portfolios heading into year-end .
As covered call ETFs continue to hemorrhage capital amid rising interest rates and market volatility, Option Jack's analysis exposes the hidden risks of yield-chasing behavior among Hong Kong retail investors, while his market timing predictions for potential lows in September-October could influence how local investors position their portfolios heading into year-end .