Her recommendations were U. Bancorp USB , which yields 2. But if you employ an options strategy, you can significantly boost those yields—to 4. In the meantime, investors can collect a 2. At the current price, the dividend yields a solid 3. So how can we bump up the yields from 2.
By selling covered calls against those high paying dividend stocks. A covered call is a strategy in which the trader holds a long stock position and sells a call option on the same stock in an attempt to generate income.
For every shares of stock you own, you can sell one call. If you own shares of stock, for instance, you can sell five calls.
A covered call is a VERY conservative strategy that requires no margin. The downside is that you give up the potential for explosive upside gains. In my opinion, covered calls also called buy-writes should be a core strategy for all investors. At Cabot Options Trader and Cabot Options Trader Pro , we always hold a couple of covered call positions to give us slow and steady gains each and every month.
If we bought shares of CAT today at This would give us a yield of However, if CAT were to trade above on January expiration, we would be taken out of our stock and call position by the trader who bought our call. This is the negative part of covered calls … your upside is limited. If the stock price is unchanged still The combination of the dividends collected over the 12 months and the call we sold places our breakeven at Similarly, if we bought shares of USB today at This would be a yield of However, if USB were to trade above 60 on January expiration, we would be taken out of our stock and call position by the trader who bought our call.
If the stock is unchanged still The combination of the dividend collected over the next 12 months and call sold puts our breakeven at Here are some recent covered call successes and failures for subscribers to Cabot Options Trader: If you have never traded covered calls before, I recommend that you first choose a stock in which you own at least shares and sell one call against it. So even if you own 1, shares of Facebook FB , I recommend that you sell just one call in order to learn how the strategy works.
Once you become familiar with the strategy, you can execute more covered calls. By adding this strategy to your investing arsenal, you can create more yield for your portfolio every month.
He uses calls, puts and covered calls to guide investors to quick profits while always controlling risk. You must be logged in to post a comment. How to Hedge Portfolios with Options Once considered a niche segment of the investing world, options trading has now gone mainstream.
Read Your Free Report Here. Enter Your Log In Credentials.More...