Buying Buy Write Closed End Funds Right

Over the last few years (say 2) new closed end funds have popped up, featuring what appears to be an organized way to scalp call option premiums and earn some wopping, juicey, outsized, almost TGTBT yields. By scalping call option premiums, I mean that these "Buy-Write" funds invest in securities, and then sell call options that offer a way of collecting rent on their holdings. Apart from their great yields, they are exchange traded, offer diversification and unlike ETF, active management.

The premium offers downside protection offsetting a loss in the event of a stock's decline; it offers free rent if the stock stays put, not moving either way up to options experation day; and it offers an additional bump beyond the take out price if the stock is called away at a strike price that is higher than the purchase price. If the stocks are bought at a discount (which is not unheard of when a manager steps in to VWAP 300,000 shares), and call write premiums are sold on days when the stock enjoys higher days. While this could be more of an imagined method than how they skin the cat, it looks like there is a method to their high yield deal madness.

Sure, it's an old options trader's trick, but these are new products and the question remains whether they can keep kicking off out sized yields in all market conditions (if premiums reel in, then one imagines that the rent on their holdings won't stay high for long). So when looking at these fund's manager, the Butch and Sundance test are in order, wherein the investor continues to ask him or herself, "who are those guys?"

These closed end fund have been rolled out by some of the biggest investment management marketing machines on earth, including new jacks Blackstone and Blackrock (Merrill, Lunch), Fiduciary/Claymore, Madison, Madison/Claymore, and old salt Eaton Vance, all still "Made in the USA", as well as those managers that are now owned by giant, overseas (European) parent companies (Insurance), including Pimco, Nicholas Appelgate, and ING. The yields on these Buy-Write Strategy funds appear to range from the very high 7%s to over 10%.

And now, the symbols, with yields as of today, and Bollinger Band Rating (B+ for a what looks like a buy nearing the bottom of its trading range; B for a reversion to a mean, back "in the middle"; and B- for ripe, nearing a top of its trading range):

• BEP--10.60%, B
  
• PGP--7.80, B-
  
• RCC--10.40%,B
  
• NAI--31.80%, B+
  
• NFJ-- N/A
  
• MCN--8.80%, B-
  
• MSP--8.80%, B-
  
• IGD--8.80%, B
  
• FFA--8.70%, B
  
• HCE--8.80%, B
  
• BEO--N/A
• ETW-9.10%, B-
  
• ETV--9.50%, B-
  
• ETB--8.70%, B-
  
• EOS--8.50%, B-
  
• EOI--8.00%, B-
  
• DPD--8.60%, B-
  
• BWC--7.80%, B
  
• BDJ--8.10%, B-
  
• ECV--10.60%, B
  
• EEF--10.10%, B+
  

These option trading, arb funds hold the promise of large returns, while the sun shines. The question remains, what happens when the premiums on the calls they sell are less bloated? (Do your Due)