Prior to the FOMC's move to increase short-term interest rates in 2022, investors seeking income were struggling to find profitable options unless they ventured into riskier areas of the fixed income market or turned to equity funds that wrote options.
One such fund that writes call options against the Dow Jones Industrial Average is the Nuveen Dow 30SM Dynamic Overwrite Fund (NYSE: DIAX), which I will examine in this review. Additionally, I will analyze the SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA) and compare whether investors benefited from DIAX's strategy of increasing income.
DIA Vs. DIAX: Dow Jones Stocks With Or Without Option Strategy
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| DIA Vs. DIAX Dow Jones Stocks With Or Without Option Strategy |
Although the data only spans a year, the results are typical for this pairing: higher income, but lower returns compared to the standard ETF.
The Dow Jones Industrial Average (DJIA) has been in existence since 1896, making it one of the oldest stock market indices. Only the Dow Jones Transportation Average is older. The DJIA expanded to 30 stocks in 1928.
One unique feature of the index is its price-weighted nature, where stocks with higher prices have a larger weight in the index. As a result, the effect of a stock split on the index is diminished. It also means that stocks with extremely high prices will not be considered for inclusion. Over the past 125 years, the DJIA has had an average price gain of 5%, while the Annualized Total Return since 1987 is approximately 11%.
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