Selling NVDA, APPL, AMZN to buy JEPQ

[dobig]

Thank you! You folks convince me to do more research on JEPQ. Perhaps I should keep APPL, NVDA, AMZN a little longer.
Yes, my goal is to build a dividend portfolio, is there any dividend paying EFT beside SCHD that you folks would recommend.
Again, thank you all.

DGRO is a nice complement to SCHD without much overlap. SCHY is the international version of SCHD and pays a hefty 6% dividend.

 

[target2019]

This IRA account is only 15% of my stash, 85% is in 401k and ROTH, where its allocation is 50/50.

The 15% dividend portfolio is designed to supplement my travels - Our SSA covers 100% basic expenses - dividend portfolio for travels and toys. I dont touch 401k/ROTH until 75 (except ROTH conversion).

We have a taxable brokerage account that comprises 15-20% of total portfolio. SCHD and SPYD are the sividend ETFs I've settled on. There are also 10 dividend stocks.

Like you, our SSA and pension covers more than our monthly bills.

The dividends are not re-invested, and provide enough to pay 4 R.E. tax bills throughout the year.

If I were trying to accomplish that in tax-deferred space, I would have a different approach since all of the money coming out of the IRA would be taxed at 22% plus a bit for the state government.

What seems logical to me would be to aim for more growth than a dividend ETF will deliver. But then you have more risk for more growth.

 

[FIRE Aggregator]

As others have said total return is all that matters. Putting aside when JEPQ was starting being the nasdaqs recent bottom I will just focus on the option exposure of the fund.

The right way to think about JEPQ is recognizing that selling options isn't generating "income" - it's actually selling a portion of your market exposure and giving the compensation for doing so back to you. When JEPQ sells a covered call with 0.3 delta against its holdings, they're effectively selling 30% of their position in those stocks. The premium received isn't extra income - it's payment for giving up that portion of market exposure. A rule of thumb is if options markets are efficient you should expect that call to be called away ~30% of the time. Presumably the fund has to buy in again potentially at higher stock prices higher once that happens reducing exposure to the underlying as a result, and that plus the systematic reduction in upside exposure and potential volatility mispricing is what leads to these and similar funds underperforming the underlying historically.

A simple example is if a stock moves from $100 to $110 during a the covered call period:

• With a short 0.3 delta call: You only capture $7 of that move (70% of $10) since you've sold away 30% of your upside exposure in exchange for the premium

This shows why the strategy doesn't create "income" - you're either selling away part of your exposure (calls) or taking on new exposure (puts). The premium received is simply compensation for these position changes, similar to how buying or selling stock changes your exposure. It's just a more complex way to adjust your position size rather than a source of true income like dividends or bond interest.

Not to get too complex but selling the call is only superior to selling a percentage of the position if volatility is mispriced in your favor. If implied volatility (what the market thinks will happen) is higher than realized volatility (what actually happens), selling the call will be more profitable than simply selling shares. This is because you got paid extra premium for that higher implied volatility, but the stock actually moved around less than the market expected. But if realized volatility ends up being higher than implied volatility, you would have been better off just selling the 30 shares. In this case, you didn't get paid enough premium to compensate for how much the stock actually moved.

We can only consume total returns, when looking at the total returns of JEPQ vs the QQQ since JEPQs inception it lags by 3% a year so far. Due to compounding that will add up if it continues.

Source of the screenshot is totalrealreturns[.]com. If you want to learn more about the intuition or math about options Kris Abdelmessih is a great resource.

 

[Kings over Queens]

SCHD and SPYD are the sividend ETFs I've settled on.

Have you determined if dividend income spun from these two ETF's is treated as orginary income or long term cap gain? I ask because SPYD hasn't shown a LTCG since 2017.

I'm interested because I'd like to add a small (10%) allocation of dividend ETF's for some diversification and nominal income, but only if it isn't ordinary income.

SSGA ETF Funds Dividend Distributions

www.ssga.com

 

[Flyfish1]

Well as an income investor, I own JEPQ as well as many other dividend funds, CEF's, REIT's, stocks, baby bonds, etc.. However, if you are going to build a dividend portfolio then I suggest building a diversified portfolio of dividend paying assets. I realize this is only 15% of your stash, but I would diversify across multiple holdings.

 

[target2019]

Have you determined if dividend income spun from these two ETF's is treated as orginary income or long term cap gain? I ask because SPYD hasn't shown a LTCG since 2017.

I'm interested because I'd like to add a small (10%) allocation of dividend ETF's for some diversification and nominal income, but only if it isn't ordinary income.

SSGA ETF Funds Dividend Distributions

www.ssga.com

View attachment 53533

Notice in the answer that the referenced years are not current. But the answer is generally what I've experienced. Almost 100% qualified for SCHD, so that is your choice, probably.

https://www.perplexity.ai/search/what-percentage-of-schd-and-sp-MifhiBa9T_CaYNJzIV5Ftw#0

 

[Kings over Queens]

Notice in the answer that the referenced years are not current. But the answer is generally what I've experienced. Almost 100% qualified for SCHD, so that is your choice, probably.

https://www.perplexity.ai/search/what-percentage-of-schd-and-sp-MifhiBa9T_CaYNJzIV5Ftw#0

This is helpful, thank you.

 

[target2019]

This is helpful, thank you.

I don't have immediate access to every year of SCHD results, but I don't recall any CG distributions either.

 

[jtmax]

I'm doing CEF USA. It's actively managed and has combo of dividends and growth and has been around for 39 years and gained 5606% since inception with dividends and growth together. They got most of Mag 7 at the top. I like the 10% dividend that comes with it. Total Return with dividend and growth in combo is comparable to S&P. I like the income so I don't have to worry about timing of my sale when I need cash.

 

[Route246]

.35 expense scares me as that is a huge number when compounding. Is it worth the gamble that it can beat SPY when it is taking 1/3 of a percent for its trouble? I live and die by 500 funds, mainly because it has worked for me for 35+ years.

 

[jtmax]

If S&P works for you then keep with it. I'd only do USA if you need the steady dividend like I do without worry about long term downside. Not many things can beat S&P except Nasdaq with that low expense. .35% is low enough that it's not worth my fretting about it as long as I get the money I want out of it but that's just me. We all have different priorities. Some people don't care about taxes that much as long as they can balance their budget in retirement but I hate paying taxes on principle because the government wastes it so much on things that sometimes works against the taxpayers. I'd rather help the public in need by charity rather than handing it to crooks who think they are above the law.
That said, I just do $900k in USA and get $90k a year of qualified dividends and have extra $30k over my spending to save or spend more. Good night. No worries. Don't have to look at it or lift a finger so I can focus on life. No worries about taxes either.

 

[jtmax]

ARCC and MAIN

.35 expense scares me as that is a huge number when compounding. Is it worth the gamble that it can beat SPY when it is taking 1/3 of a percent for its trouble? I live and die by 500 funds, mainly because it has worked for me for 35+ years.

ARCC and MAIN are 2 stocks that have grown as fast as SPY with dividends added and been around for 21 years and they're just BD companies. 10% and 5% dividends so I like that. Main had a soft landing in 2008 crash so that's a well managed company against downturn. Good stocks for me in retirement.

 

[target2019]

ARCC and MAIN

ARCC and MAIN are 2 stocks that have grown as fast as SPY with dividends added and been around for 21 years and they're just BD companies. 10% and 5% dividends so I like that. Main had a soft landing in 2008 crash so that's a well managed company against downturn. Good stocks for me in retirement.

This link should bring up the chart comparison of ARCC with MAIN and BX.\ for 5 years.

https://finance.yahoo.com/quote/ARC...pZ0RldkV2ZW50cyI6W119LCJwcmVmZXJlbmNlcyI6e319

Note that this is just NAV comparison. No dividends are reinvested, so it's not total performance.

Here is total performance compared with VTSAX.

 

[target2019]

DGRO is a nice complement to SCHD without much overlap. SCHY is the international version of SCHD and pays a hefty 6% dividend.

Dividend must have changed significantly for SCHY.
I see as of today (2/9/2025):

SEC Yield (30 Day)
As of 02/06/2025
4.27%

Distribution Yield (TTM)
As of 12/31/2024
4.61%