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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: Tommaso who wrote (25084)	3/7/2005 4:32:38 PM
From: Knighty Tin	Read Replies (2) of 116555

T, They aren't even trying to qualify their dividends. They will be 100% ordinary income. Being a trouble maker, I asked why they wouldn't use Leaps and make the premiums long term for shareholders. No good answer. But the truth is, people ignorant of the option markets always look to sell 1-3 month options because the annualized return looks higher. The reality is, you do not often annualize them. The big problem they didn't address was what happens when resource stocks decline by 20%. Now, you can't write premiums or you will have a loss when called away. And the loss offsets your premiums so you have zero net yield. Clients just love to hear, "I have good news and bad news. The bad news is the price of the fund has declined. The good news is you don't have to worry about paying ordinary income taxes on those distributions this year." <G> Still, despite the fact that I think we are dealing with option tyros here, at least this is a new idea for the market and once this fund goes to a deep discount, I'll be a buyer.

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