How it is worked out
The fund collects the premium every month and pays it out as a distribution. If the stock or the index rises above the option's price, the gain beyond it goes to the option's buyer. The N-PORT filing shows the options as positions with a negative value.
How to read it
- The high distribution is not free: in a market rising fast, the fund falls behind the stocks it holds.
- In a fall the premium softens the loss a little, but the fund drops almost as much as its stocks.
Example
A Nasdaq 100 fund that sells options every month and pays out 10% a year, while the index rose 25% and the fund 12%.