Covered Calls And Dividends
The strategies of covered calls selling and dividend investing can work well when they are combined together. So what are these two strategies?
Dividend paying stocks are stocks that pay a small percentage of their profits to the people who own their stock in a form called dividends. By holding these stocks you can get a somewhat consistent income off of the stock market without taking on any additional risk.
That makes dividend investing very popular, but there is another method of making a cash flow off of a stock that you own which is even more powerful.
Covered call writing is more profitable, but it does come with some additional risk. Anytime you sell a covered call you are giving someone else the right to buy the stock from you at a given price in the future.
If you decide to sell a call on a stock that you own for $35 then you will be forced to sell it at $35 if the buyer of that option exercises their right. Of course call options do eventually expire letting you sell them over and over again. And The added risk also comes with a much higher potential reward then dividends will.
Of course not everybody will like this way of income investing. After all if you sell a call on a stock and it shoots up then you could miss a huge majority of the profit. However that is just the risk you take with this strategy. On the other hand if you are more geared to getting consistent money then shooting for one big gain this strategy can work very well.
These are both great strategies of investing in the stock market, and they can easily be combined. Simply by jumping into fundamentally strong companies and selling covered calls on them an investor can increase their return and create a passive income on a stock that they already own.
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