Hi everyone,
After years of trying every type of investing strategy, I’ve found an investment strategy that works for me and I believe for you too. I’ve tried buying Calls and Put Options, Day Trading, Futures Trading, Currency Trading, right up to Soy Bean Trading! Here is a section talking about how I’ve settled on dividend and option income investing. If you are interested in learning how you can invest this way too, contact me at davidlester@dclcapital.com.
I describe this investing strategy as collecting rent in my book “I Money”. I view the dividend income as the first rent and the option premiums as the second rent. In markets like we are having, and will continue to have, investors need to get paid to hold stocks with dividends AND options.
Benefits of Option Income Portfolios:
• 2 sources of income: dividends and by writing options
• Actively managed value-oriented portfolios
• Focused on large capitalization dividend paying Canadian and US companies
• Individually managed portfolios
• Tax preferred dividends and capital gains from option premiums
Options as an investment tool.
Options are often perceived as a risky way to increase leverage in an investment portfolio; however they can also be used to generate income.
First, what is an option? An option is a derivative that allows the owner to either buy (call option) or sell (put option) a stock at a fixed price over a period of time.
How can you take a derivative and use it to generate income?
You can enhance the yield by collecting income from selling what is known as a covered call. A covered call is a call you sell when you own the stock. For example, you buy 200 shares of a stock and write (sell) a call option on 200 shares of the stock. When you sell the option you get paid a premium from the purchaser. This is your income.
What do you have to give up to earn this income? When you sell an option you sell the right to purchase the stock for a fixed period of time, say 2 months, at a fixed price. If the stock is trading at $20, you might get 50 cents in premium but limit your upside on the stock to $23 for 2 months. If the stock price drops you keep the 50 cents as income.
If the price rises but stays under $23 you keep the income. If the price rises above $23 you could be forced to sell the stock at $23 but you also get the 50 cent premium. This strategy works best in a flat or slowly moving market. If stocks have large
upward price moves you give up the opportunity for significant gains. Remember the concept was to increase ongoing income so selling a stock at a higher price than you paid is not a bad thing.
This strategy is not for every investor but may help those looking for higher distributions from stocks they already like.
I love to talk money so feel free to contact me to find out how to invest like this,
Dave
davidlester@dclcapital.com
