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jluyt
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Conservative investor always looking for means to reduce our risk when investing. Looking forward sharing some ideas.
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  • Tapping Into The Yield Of BZF

    I recently have been looking at high-yield ETFs and possable means of tapping into the yield while still reducing the risk.

    BZF is the Brazilian Real Fund from Wisdom Tree Dreyfus. It has a dividend yield of 30%. That being said it has dropped 15% over the pass year and is a volatile play indeed. My thought is to do a married-protective-put. Buy 100 shares of BZF, followed by buying a long put (1 contract per 100 shares owned). With such a high dividend yield, it covers the cost of the put easily, allowing to enjoy the benefit of the 30% yield.

    To review my technical findings:

    Stock Price: $18.76 (26 August 2012)

    Shares: 100

    Investment: $1876

    Dividend Yield: 30.5%

    Annual Dividend Payout: $572

    Buy 1 put @ $18 strike price for $1.15 (expiration in 7-months)

    (although these numbers are for a long term put, it works out on monthly numbers too)

    Dividend Payout for 7 months: $333

    Cost of 1 contract $115

    7 Months dividend payout - Cost of the contract = $218

    This produces a profit potential of 11.66% during the 7 months.

    Hedged, reduced risk. All of this is presuming the price of BZF stays constant, which we know it will now. If it drops, exercise the put. If it goes up, enjoy the profits in the share price increase and good sleep over having the put.

    Any inputs are welcome.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Aug 27 1:18 AM | Link | Comment!
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