STK - FTQI: Poor Structure To Extract Dividends From The Nasdaq 11% Yield

2024-04-18 20:23:22 ET

Summary

• This article analyzes the First Trust Nasdaq BuyWrite Income ETF and argues that it's not ideal for investors seeking growth from Nasdaq stocks.
• The fund aims to generate income through a covered-call strategy on the Nasdaq-100 Index, but utilizes in-the-money call options.
• Growth stocks, however, aim for price appreciation, which these calls restrict since they are ITM options.
• While FTQI offers a high dividend yield, its in-the-money call strategy sacrifices potential growth. Consider STK or JEPQ for this purpose.
• FTQI might be suitable for someone seeking Nasdaq exposure in a perceived bear market.

Thesis

The first step in investing is understanding what you are buying and the risk factors involved. Say you want to buy bonds - you need to understand the difference between treasuries, corporate bonds and junk bonds in order to zone in the sector that is most suitable for your investment style. The same goes for equities. Equities fall in certain large sectoral allocations such as value, blend or growth, each sector with its unique risk and rewards. Layered on top of this initial risk factor selection is the instrument....

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