Every time I write about gold, my inbox fills with the same question. What do I think about IAUI?
IAUI is the NEOS Gold High Income ETF (IAUI). It pays a distribution rate of roughly 13%. On gold, which is an asset that has never paid a dividend in its life, as everyone reading this knows. It's a commodity.
That number does something to people. So let me show you the other number.
IAUI's 30-day SEC yield, which is the income the fund actually earns from what it holds, is under 2%. The gap between 13% and 2% is not magic, but the option premium and return of capital. Essentially, the fund sells gold's upside for cash, then hands you the cash.
That is the entire covered call trade in one sentence. You are not buying income. You are selling volatility, and you get paid today for capping your gains tomorrow.
It's also why I have been skeptical of these funds for one simple reason. If I am bullish on something, I do not want to cap my upside. That view has not changed. But it is only half the story.
Sometimes you are not bullish. Sometimes you are neutral, retired, or holding an asset that pays you nothing at all. In those cases, selling upside you never expected to use is not a sacrifice. It is a smart trade.
Hence, this is not a piece about whether covered call ETFs are good or bad. It is about matching the right fund to the right job.
That's why I spent the past few days working my way through everything you need to know about covered call strategies and ETFs, and I believe I have created a very helpful piece that I would turn into a chapter if I ever were to write a book on investing.
Having said all of this, as we have a lot on our plate, let's get right to it!
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