HYGW: The High Yield Of High Yields That Could Distribute 11%

Financial Serenity 1.9K Followers Follow Summary I view the iShares HYG Premium Income+ ETF as a carry-focused play, given low OAS and elevated volatility premiums. HYGW systematically sells at-the-money calls on HYG, boosting distributions to an annualized 15.99%, but at the cost of all upside above current price. I believe with spreads near historical lows, HYG's capital gains potential is limited; HYGW's appeal hinges on sustaining high volatility risk premiums. I assign HYGW a HOLD rating, as a widening OAS could cause permanent losses, but higher distributions versus HYG remain likely in my opinion if volatility persists. Richard Drury/DigitalVision via Getty Images Textbook, as far as I 'm concerned: the Option-Adjusted Spread (OAS) of the ICE BofA US High Yield index and that of iShares iBoxx $ High Yield Corporate Bond ETF's ( HYG ) portfolio are This article was written by Financial Serenity 1.9K Followers Follow Financial Serenity is a quantitative research column specialized in ETFs. We analyze all ETFs to understand which ones hide traps and which ones deserve attention. The ultimate goal, however, is the product of this selection process: an ETF portfolio capable of maintaining linear price growth (at least indexed to the inflation rate) while generating sustainable, recurring income streams. The analytical key is therefore portfolio construction, asset allocation, and the application of proprietary strategies for average purchase cost management. Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. The author expresses only personal opinions and does not provide financial advice. The content is for informational purposes only and should not be considered as investment recommendations. The author assumes no responsibility for any investment decisions made based on this article. Always conduct your own research or consult a financial advisor before making any investment choices. The author makes no guarantees regarding the data, and the user agrees that the author shall not be held liable for the user's use of the data. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.