Selling Covered Calls Vs Buying Dividend Stocks
Covered calls and dividends are two different ways which you can make consistent money off of a stock that you won. But which way is better? What is in the world is the most profitable?
Normally you can make a lot more by selling covered calls then you could by collecting the dividends. However there is one big disadvantage to selling covered calls, it can limit the amount you can make off of your stock.
When you start writing covered calls you give someone else the right to buy the stock at a certain price. So if you own the stock which is trading at $35 and sell the $35 call on it you would be obligated to sell your stock at $35 if the buyer of that option should choose to do so.
What does that mean? It means that you may miss a large move in the stock. Regardless of how far the stock moves upward you would be forced to sell it at $35, this means that you could potentially miss out on making some big gains if the stock does in fact shoot up.
On the other hand it can be extremely profitable. If the stockgoes down or even just stays at $35 chances are you will not get called out. Because of this you could sell calls month after month and make great incomes off of your investments.
On the other hand dividends usually pay out a much smaller percentage, but you are also not risking anything new from them. Companies simply pay out a small portion of their earnings to their shareholders these dividends come regular and you are not risking missing a profit if the stock shoots up.
So what is the verdict? Is it better to look for covered call stocks or just buy a few dividend paying stocks. Well what about combining them. Not everyone is comfortable with covered calls, but by combining covered calls with great dividends paying stocks you can increase the amount of money you can make through income investing.
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