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

Thanks for the clarification - the problem of "fewer and fewer shares purchased at an ever increasing price" relates back to some followup discussion of Roger Nussbaum's January piece about MCN, as to whether such funds always operate by "cannibalizing" the NAV of their assets.

I wrote "This is the MCN blurb from ETF Connect: 'Its investment objectives are to provide a high level of current income and current gains and long-term capital appreciation. The Fund will pursue its investment objectives by investing in a portfolio consisting primarily of high qualitylarge capitalization common stocks that are in the view of the Fund’s Investment Manager selling at a reasonable price in relation to their long-term earnings growth rates. Under normal market conditions the Fund will invest at least 65% of its total assets in common stocks of large capitalization issuers that meet the Fund’s selection criteria.' I take it the fund is constantly replacing the underlying assets on something like a GARP basis." MCN, in particular, had gained NAV since inception.

My question is whether it's right to presuppose the replacement of optioned assets will always or mainly be at a worse price. MCN fund managers clearly have latitude to actively manage the "asset pool" of the fund as well as call writing, e.g. decisions about "normal market conditions" and selection of large-cap stocks, so it's not a dumb mechanical operation. My concern is re over-generalizing about the CC model (and I certainly don't doubt there are underinformed financial advisors out there.)

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

This is a helpful explanation of the difference between CC fund payouts and dividends, but I'm a little perplexed by this analogy: "The insurer banks the majority of the premiums he collects as reserves against disaster and you, the investor, should bank the vast majority of the premiums you collect from your covered calls against the day when the calls are exercised." It's the CC fund, not me, who is charged with protecting against the downside risk of the strategy - as an investor, once I get my monthly check it's "from my cold dead hands." As an investor, I need to know enough about the CC fund model and consequent market risk to guess that the monthly check is enough to offset it - the 5% CC fund yield spread over dividends has to be for risk and sacrifice of growth. Hopefully these are taken on intelligently on the same basis as high-yielding but more familiar junk bonds or energy trusts. It appears there are well and poorly run CC funds as is the case for insurance companies and even dividend-paying corporations (which now and then founder.) If there is some deeper undisclosed risk associated with the model or management of some particular CC fund such that the yield is either too low or is unsustainable, I hope it will be exposed here - but I haven't read anything beyond the obvious, that my monthly check comes at the expense of underperforming the assets held by the fund.