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AllianzGI NFJ Dividend, Interes Message Board

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  • tchoupitoulas_st tchoupitoulas_st Jan 3, 2012 5:04 PM Flag

    Brutal sell off today

    CEFs using an option strategy may write a call option for 3 to 6 months, or even 1 year of time or more. The premiums received for the call writes is not considered income until the position has been completed or ended. Therefore, the CEF has the cash premiums but it can’t be considered income because the option trade has not ended. When this cash is used for distributions, it will be classified as return of capital instead of income. In reality, this distribution was not a result of returning cash from exceeding the growth of income and it is not a transfer of equity value from the company to shareholders. The distribution is merely classified as return of capital because it does not meet the terms of recognized income yet. This should not be considered a negative event for CEFs using option strategies.

 
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