Chamois16

Further Thoughts On Call-Writing Closed-end Funds (BEP, FFA, IGD, JPZ, JSN, MCN, NFJ)

I'm not an options expert, but believe some of the basic premises in the argument are false. Options do not need to be priced inefficiently to "earn" a total return above the distributions; one does not need to rebuy the original stocks called away, and many CEF deal in index options, which are settled in cash when exercised, rather than by the exchange of shares. Strike prices, as has been mentioned, can be set to reflect targets.

The options writing CEF I follow have done as well as, or better than, expected, with NAV total returns well in excess of total distributions. NAI, for example, about twice as well in NAV total return with an NAV gain of over 10% net of distributions.

To debate whether the distributions are true dividends, if I understand the comment, is somewhat moot, since they are not dividends as defined by the ICA 1940, the SEC or GAAP, when portions include capital gains a/o other return of capital. Only in tax terminology can distributions be considered dividends and then not always.

I believe that whether a CEF makes sense or not as a concept depends largely on management. In this case, it probably depends more on the options advisor than on the stockpicker, usually separate teams.