QYLD: Big Yields Come With Bigger Pitfalls

Summary

• Diversified portfolios with high yields often compromise on capital, leading to NAV degradation, as seen with QYLD's persistent price decline and poor performance.
• The longest running study on covered-options strategy demonstrates that these ETFs erode investors' total capital over time due to insufficient income generation and reliance on capital returns.
• QYLD lost almost 1/7th of its market cap due to sub-par options writing in 2023. The ETF may never recover, and I recommend a "strong sell".
• Numbers show that investing in QQQ with disciplined annual withdrawals or investing in a lower-yield alternative like SCHD leads to better capital growth.

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I can understand the allure of big yields, who doesn't like to see that substantial deposit in their account every quarter, delivered like clockwork? But as Harry Markowitz, the pioneer of Modern Portfolio Theory, famously said, "Diversification is the only

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.