QYLD 12% Yield - What You Need to Know Before Investing?

Описание: ETF QYLD offers 12% annual yield. Should this be part of your portfolio? What you need to know before investing in QYLD. Three areas to consider – covered call, distribution – capital gains, return of capital and tax implication. In this video, I will talk about how QYLD works, analyze some common scenarios that most investors will use with QYLD and finally wrap it up with some smart ways to use this investment tool.

CORRECTION: SPY distribution is 1.33% and not 12% (Magic of 'Copy-Paste' :)). Other numbers for SPY are accurate.

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SCRIPT
I have received a lot of comments asking for my thoughts on QYLD. It is an ETF that offers up to 12% annually through a covered call strategy with limited down side
In this video, I will talk about how QYLD works, analyze some common scenarios that most investors will use with QYLD and finally wrap it up with some smart ways to use this investment tool
To understand QYLD, you need to understand 3 areas as I see it - #1. Coverall Calls, #2. Dividends, Capital Gains and Return of Capital or ROC and finally #3 Impact on Taxes
So QYLD writes and sells monthly Nasdaq 100 calls, collects premium, at the end of the month distributes a portion of the income to investors and repeated the process every month
The only difference in QYLD world is, option cannot be exercised early, unlike the traditional covered call strategy.
Which means, it only matters where Nasdaq 100 finish at the end of the month. Prior to expiration, any market swings that take place throughout the month don’t matter. You can find more detailed information on their website
Now let’s talk distribution. And I promise, I will bring all of this together. Depending on the security, distribution can be classified as ordinary dividend income, qualified dividend income, capital gains and return of capital
Ordinary Dividend is treated the same as income and will be taxed at your current income tax bracket
Qualified dividend have a favorable tax treatment that is lower than ordinary income tax rates
Capital Gains are profit from the sale of a stock.
How much these gains are taxed depends on how long you held the asset before selling. Less than a year is considered short term, more than a year is long term capital gain. You will pay more tax on short term capital gains
Distributions that are a return of capital aren't dividends. It is not taxed. A return of capital is a return of your investment in the stock of the company. Basically it reduces the cost basis of your stock
One thing to note with Return on Capital is if you hold the security for a long time, it can reduce the cost basis to zero which means you have been given back all the money you invested
In such a scenario, you will continue to receive ROC distribution and it will be now taxed as long term capital gains at a reduced rate
That took some brain power I am guessing. Boom. Let’s take all this information and summarize this for QYLD in 5 bullets
QYLD use covered call strategy to generate monthly income for investors
Distribution is not considered dividend but Return of Capital
Return of capital is not taxed and reduces your cost basis
When cost basis is reduced to zero, and additional ROC will be taxed as long term capital gains, assuming you held the security longer than a year
You will pay higher taxes if you held QYLD for less than a year and lower if more than a year
Now that you’ve survived all this painful information, let’s do some numbers. Dive deeper and take some real scenarios to try and make sense out of QYLD and answer the question whether it is right if you or not. More in the video

DISCLAIMER - I am not a Financial Adviser or Tax Professional, the information provided is my personal opinion and should not be considered professional advice.
#thinkfinance #QYLD