I am frequently asked by subscribers if there are any possible
ways to boost returns on stocks that pay large dividends
My response is always the same - the most common and effective way
to boost returns in a high-yield portfolio, without selling the
stock, is to use a covered call strategy.
I want to tell you that most people will never use options. They
think they're complicated or risky.
This misconception is simply not true.
Let's be clear - ANY investment has some risk. Each comes with its
own type; be it stock price volatility, company specific risk,
regulatory risk, currency risk - you get the picture.
Naturally, options have their own unique characteristics. And once
you get the hang of it, buying and selling options is NO different
from buying or selling shares of stock.
My covered call options strategy entails owning shares of a company
that also has listed options available. For every 100 shares that
you own, a covered call strategy would have you sell one call
option (every options contract is for 100 shares) with an
expiration date at some time in the future. Typically, the price
(strike price) that you choose is above the current market price of
the underlying stock when selling a covered call.
Selling a call against shares you own gives the buyer of the call
to buy those shares at a predetermined date in the future, and at a
For instance, say you own 100 shares of a $10 stock, and say you
can sell calls against those shares at $12.
If the stock hits $12, the buyer can buy or "call" those shares
away from you at $12. But regardless of whether the stock hits $12
or not, you ALWAYS get to keep the initial option premium (the
Why do this?
Because it lets you collect MORE income from the stocks
you already own.
In most cases, I use options that are 1-3 months away from
expiration and those that are out of the money. This allows for the
stock to advance before the strike price is hit.
This strategy should be employed if you believe a stock is a
long-term hold, but think that it could suffer short-term weakness
or struggle to break through overhead resistance. Selling calls on
stocks in these situations allows you collect the option premium
(the money!) while simultaneously collecting dividends from the
underlying stock. Another good reason for selling a covered call is
if you think the market as a whole is due for a pullback. This
would help to neutralize the downside of a stock you otherwise want
to continue to hold.
Here's an example. Say you own 1,000 shares of
. It currently trades at around $26.93 with a dividend yield of 5.6
percent. Say you decide to sell 10 call options that give someone
else the right to buy your shares from you for $28 per share,
anytime between now and September options expiration. At current
prices, you'd get paid about $280 for these options ($0.28 per
contract * 10 contracts * 100).
As long as Altria closes below $28 at September options expiration,
you get to keep your shares, and the $280 is yours to keep. Looking
at the stock's price history, Altria has bounced between $25.50 and
$27.50 for the past three months. What that means is that if you
used the covered call strategy repeatedly over time, you could have
earned a lot more income in addition to the dividends you got along
In fact, as it turns out, you would have doubled your quarterly
dividend return. This won't always be the case, but it's a good
example of how a covered call can help you boost your income.
Okay, I fully recognize that options aren't for everybody.
That's why I've put together a simple report on one more way to
increase your dividend income. The secret is to pay less for your
dividend stocks. That increases your gains automatically.
If you're interested in reading this report, check out the full
clicking here now