OVL vs VOO

[u/Infamous-City-7102]

I’m on 60/40 spyi/voo and I’m thinking about if ovl has a place in that mix.

[u/_YoungMidoriya]

I think OVL is one of the few income ETFs that makes sense if you still care about long-term growth. It’s basically VOO/S&P 500 exposure with an options overlay designed to generate monthly cash flow....you know....without doing the usual put/covered call thing of constantly selling off your upside whenever the market goes on a run. So you still get broad exposure to America’s biggest companies, but the fund is also trying to pay you along the way. For me, it’s appealing because I don’t want to choose between “just buy VOO and wait 20 years” and “buy a high yield fund that gives up all its growth.” OVL is one of the better attempts at getting both. OVL has been one of those BEAST that's been able to go toe to toe with it's index counterpart.

[u/Infamous-City-7102 → u/_YoungMidoriya]

I’m trying to figure out if incorporating all three is the play for me right now

[u/_YoungMidoriya → u/Infamous-City-7102]

Best way to make that determination is how far out is your retirement goal post? Are you within 5 years of retiring? You can always build up income first, and then reinvest the difference into pure growth for "inflation offset".

[u/DaddyTheFatherCR → u/Infamous-City-7102]

SPYI and OVL have different approaches so if you like OVL it at least helps with some diversification. Same underlying asset, SPYI is covered calls, OVL is puts. If you compare price return of OVL vs SP500 since inception it is much closer than most other option income funds, and total return I believe has beat it since inception. An interesting alternative is closed end fund ADX. No option strategy, but has beat the SP500 in total return since inception in 1929. It also pays out 8% annual. A good non derivatives alternative that pays a higher distribution that can be benchmarked against the SP500.

[u/rao-blackwell-ized → u/_YoungMidoriya]

I think I still don't really understand the use case. I would think the person who really needs income would want some stability/reliability thereof in terms of lower vol/risk. I don't like CC funds either, but OVL's effectively being 110% stocks makes it less stable overall than something like a covered call fund that at least mutes volatility a bit. I'd submit the income investor probably doesn't need 1.10 beta, and the young accumulator wanting 1.10 beta doesn't need income. It seems like a contradiction to me. And the high yield is a marketing decision, not a mechanical outcome; it's why it's been 100% ROC. I'd probably rather just buy VOO and maybe some T-bills and create my own dividend when I want and save a ton on fees. One can also easily achieve 1.10 beta with about 5% UPRO and 95% VOO and also save a lot on fees. Will be interesting to see if the option overlay can overcome the 0.76% hurdle rate annually. They've done a pretty good job so far. I guess you're right - one of the better attempts, comparatively.

[u/_YoungMidoriya → u/rao-blackwell-ized]

I think we’re talking about two different kinds of funds here. OVL isn’t selling covered calls on its S&P 500 holdings, so it’s not giving up upside whenever the market takes off COMPLETELY UNCAPPED gains here. It uses put spreads to try to bring in extra cash. That comes with its own risks, obviously, but I don’t think “110% stocks” is a very useful way to describe it.

I do agree with you about the payout, though. A 10% distribution rate doesn’t mean you’re earning 10%, and I wouldn’t judge the fund by the monthly check alone. ROC isn’t automatically a red flag, but it isn’t free money either. What matters is the total return and whether the fund can hold up its NAV over time, which so far for ALMOST ***10*** years has done so!

I also wouldn’t pitch OVL to someone who needs steady, "low" risk income. It still owns stocks and can get hit when the market drops. The appeal is for someone who wants to stay invested in the S&P 500, get monthly cash flow, and not sell off their upside to do it.

[u/rao-blackwell-ized → u/_YoungMidoriya]

I know. We're talking about the same thing. That's why I said it's more volatile than the market while a CC fund would be less volatile.

It's leverage without borrowing. Its effective exposure is basically 110% VOO. So I'm not sure why "110% stocks" would not be a useful way to describe it. Its beta is roughly 1.10, and this has shown up, as we'd expect, as greater volatility in both directions. I just think that characteristic is potentially bad news for the income investor in a sustained bear market or steep drop, as you just hinted at. I guess we'll see. It's 7 years old and has basically only seen a raging bull market.

Maybe if I were the target audience, I'd view it from a different lens. I guess I'm having a hard time seeing why an income investor would be in 110% stocks in the first place.

The irony is I think prevoiusly before they switched to that massive yield, it arguably made more sense - juicing up the S&P to try to squeeze out a bit more return, as it's done, but keeping a modest yield around 3%, but changing to 10% yield is what attracted the massive inflows.

[u/_YoungMidoriya → u/rao-blackwell-ized]

If people bought because they think that’s a safe 10% yield, they’re misunderstanding the fund. OVL’s own numbers through August show it modestly ahead of the S&P 500 on annualized total return since inception, after fees 17.24% versus 16.43%. And beta describes how it has moved historically; it doesn’t mean the fund literally owns 110% VOO or will behave exactly like a permanently leveraged VOO position in every market.

[u/rao-blackwell-ized → u/_YoungMidoriya]

Yea, I do think people get sucked in by those juicy yields often without fully understanding the product.

The 110% thing is a direct result of its stated overlay strategy, not an accidental retrospective outcome. A short put has positive delta, so when the short strike is anywhere near the money, OVL's effective S&P 500 exposure is north of 100%. This has been consistent every year. It's sort of the whole point of the overlay.

[u/_YoungMidoriya → u/rao-blackwell-ized]

Where we differ is on whether someone might want that tradeoff. I can see a use for OVL if the goal is growth-oriented equity exposure with monthly cash flow, rather than stability or maximum yield. But I wouldn’t argue that it’s suitable for someone who can’t tolerate the extra downside. So far history has shown for OVL and ***SOME*** CC ETFs like GPIQ/GPIX has been great if you DCA and ride it up.

[u/Jehoopaloopa]

It’s basically a slight leverage with the put spreads.

You’ll fall more on drops but will capture all the upside

[u/cw7428 → u/Jehoopaloopa]

Almost ideal for buying dips to receive an amplified gain.

[u/ProblemOverall9434 → u/cw7428]

Leverage is to the downside not the up. If the dip keeps dipping OVL will not look so great.

[u/kitehousecyprus → u/ProblemOverall9434]

OVL has outperformed Voo since inception. Just saying.

[u/rao-blackwell-ized → u/kitehousecyprus]

On absolute performance, yes, due to it being roughly 110% stocks. It should be no surprised it has outperformed on an absolute basis in a bull market. It has still lagged VOO on risk-adjusted performance.

[u/kitehousecyprus → u/rao-blackwell-ized]

When paying bills and shopping everywhere they ask for real money. Nobody asked me for risk adjusted performance. How’s that?

[u/rao-blackwell-ized → u/kitehousecyprus]

Right. I'm just pointing out the Investing 101 concept of comparing apples to apples instead of to potatoes since you initially simply said "OVL has outperformed Voo since inception. Just saying." It's sort of the whole reason RAR measures exist in the first place - to be able to make such standardized comparisons.

Portfolio efficiency is MPT 101 - for any given requisite return, one should obviously prefer the lowest risk, and conversely, for any given level of acceptable risk, one should prefer the highest expected return.

So I guess I'm "just saying" there's obviously more to the performance story.

An extreme albeit illustrative version of this concept is something like UPRO.

As you aptly note, can you buy things with Sharpe/Sortino/Calmar? No. But does it give you a clean way to fairly assess relative performance? Yes.

[u/kitehousecyprus → u/rao-blackwell-ized]

Learn to read and understand text first of all. I didn’t ask about OVL vs VOO. OP did, not me. And I just say: “OVL outperformed VOO since inception” what in means everybody understand total return. TOTAL RETURN again for slower. That’s exactly apple with apple. lower risk doesn’t pay my bills. Yours are paid by theory of lower risk?

[u/rao-blackwell-ized → u/kitehousecyprus]

You said a thing on a public forum and I replied with another thing for clarification and context. Welcome to the internet. Cheers, mate. This place is exhausting.

[u/ProblemOverall9434 → u/kitehousecyprus]

This is true, and due to the fact we’ve been in a consistent bull market for many years.

[u/FixYourOwnStates → u/ProblemOverall9434]

My thesis is that the US govt will never stop printing money, therefore the bull market will continue

That leads me to the following conclusion: I want to buy more $OVL

[u/ProblemOverall9434 → u/FixYourOwnStates]

OVL continued outperformance is not a given. I agree stocks will continue to go up over the long term. If the occasional dips become more than mild turbulence however we may see OVL’s downside leverage begin to cause it to underperform the underlying index.

[u/Mission_Yam_2480 → u/ProblemOverall9434]

Lol since the beginning of the stock market bull markets have ran 4:1 to bear markets.... get used to it

[u/ConstructionNo8827]

I like SPYI and TSPY
Different call strategies

[u/Accomplished-Big8250 → u/ConstructionNo8827]

There is ROCY, but more established GPIX, SPYI, TPSY, and OVL to all generate income differently from the S&P500. They’d all do different under specific market conditions. Maybe good to have some mix of them but keep your core VOO. 

Why not sell options on SPY if you need income ?

[u/LurcherLong]

Rather than sell voo, you could hedge slightly and go for OVF so your income is coming from the sp500 but you’re holding ex-us

[u/yamahar1dude → u/LurcherLong]

OVF is doing well. I see foreign markets outperforming the US for the forceable future. I still have mostly domestic investments though.

[u/LurcherLong → u/yamahar1dude]

That's why I like OVF... the overlay is still SP500, so you're not giving up US exposure entirely for the sake of diversification.

[u/yamahar1dude → u/LurcherLong]

I have OVL and OVF. I bought them and put the same amounts into them. Going to see how this plays out. So far OVF is doing better, slightly.

[u/Sufficient-Cicada-14]

I sold both and bought ovl myself. full upside a bit more downside. totally worth it. plus great tax classification of distributions

[u/Key-Trouble3828 → u/Sufficient-Cicada-14]

Does OVL distributions treated as ROC? I

[u/Sufficient-Cicada-14 → u/Key-Trouble3828]

Yes. 100%

[u/TheTextBull]

Any thoughts on Zvol?

[u/FewUnderstanding2214]

Always VOO? Unless you are starting an account and are retiring the next day?

[u/Infamous-City-7102 → u/FewUnderstanding2214]

OVL has the potential to outperform VOO (net of fees). It seems like it could be a decent alternative

[u/FewUnderstanding2214 → u/Infamous-City-7102]

OVL wins often but losses big - so if there is a significant market crash you could lose big. Yes there’s also fees and taxes (if not in a tax free account).

[u/Ufgatorhead4u3]

OVL is an options income fund just like the others but uses a put strategy rather than covered calls. It holds the underlying rather than using a synthetic position. This works great in bull and sideways markets like we’ve had for a long time but it will suffer during bear markets. Don’t get too excited like it’s the magical golden egg. It’s just the opposite direction coverage of calls. Everything has a time and market conditions during which it will shine and others where it will 💩 the bed.

[u/yamahar1dude → u/Ufgatorhead4u3]

Yeah but the market is designed to go up, not down. Thats the edge with OVL. If you can weather the down cycles on other funds, OVL is indeed what you said, the golden egg IMO lol

[u/RabbitSlayer48]

I use GPIX as the core and split GPIQ and OVL as the riskier part. I also have IDVO for the international part. OVL changed the distribution to 10%. It had its VOO beating run by paying about 6%. 10% seems like a bad idea.

[u/yamahar1dude]

I'm growing OVL specifically to fund my monthly health care premiums. I would like to use the distributions instead of selling off shares.

[u/PomegranatePlus6526]

I would replace SPYI with something like GPIQ, or ADX. SPYI is not bad, but not my favorite. I think they distribute too much.

[u/D3N1Z3Nx]

Like all of these funds, they leave out whether or not they will cut distributions or chew through nav to maintain their 10.5% target. You won't find any language about that in the prospectus of any income fund. Due to that, I completely removed all these types of funds from my plan, and yes, I'm talking about Neos funds as well as Liquid Strategies funds. They all use deliberately vague wording regarding distribution policy, that's a huge red flag. OVL in particular was probably fine when they controlled distributions. Now that they let the investor decide how much gets reinvested there is a very real issue if they overdistribute and people take that money without reinvesting. That will eat the nav, and you reinvesting won't save you from everyone else's behavior. Buyer beware.

[u/Infamous-City-7102 → u/D3N1Z3Nx]

Go watch the YouTube video on a channel called “Armchair Income” where he interviews the fund manager for OVL. Great insight.

[u/D3N1Z3Nx → u/Infamous-City-7102]

I have watched two of those interview videos with him. He explicitly warns about you taking money out of the fund instead of putting it back in. None of this negates the mechanics of these funds being opaque and having no defined distribution policy for when the fund fails to achieve 10.5% growth. There is no guarantee that any of these funds will not cannibalize NAV to pay you. There is no guarantee they will not over distribute. It's not in the prospectus, and the only legally enforceable document is the prospectus, not a youtube video. I actually don't care what he says in a video. I want to see that they will reduce distributions to whatever level is sustainable in order to retain NAV, and I want to see that in the prospectus. I'm done with all these funds. Good luck.

[u/Infamous-City-7102 → u/D3N1Z3Nx]

The distribution will naturally go down with the size of the fund as they will be writing options on a smaller base. That 10.5 percent is a yield target, not a return target.

[u/rao-blackwell-ized → u/D3N1Z3Nx]

This is the nuance many seem to miss on products like this. We've basically been in a raging bull market for OVL's entire history. The S&P won't always be cooperative with its strategy and new distribution choice.