Covered Calls and Dividends
Dividends and covered calls are two ways which an investor can make money off of a stock that they already own. Who can say no to getting some extra cash flow from a stock that they already own.
So what are they? Let us take a look at dividends first. When a company offers a dividend stock they pay their investors a small percentage of their profits. By keeping a dividend stock an investor can profit month after month from their share of the dividends.
If you happen to have enough money lying around you may actually be able to invest in a company that pays out a dividend and live off of that dividend by itself.
This can be a nice way to make some cash flow off of an investment, but it is not the only way. An Investor can also make money by covered call writing. When an investor writes covered calls they sell another investor the right to buy their stock at a specific strike price on or before a specific date.
This can come with a huge payout. An investor can recieve a pretty nice premium each month simply by selling covered calls.
However you have some risk when you sell a call. If the stock makes a big move in the near future that investor would be forced to sell their stock and miss out on a big chunk of the move. So basically you take on some risk of missing a profit in the future for some money now.
It is up to the individual investor to decide if it is right for them, but in general it can be a pretty powerful technique. Selling calls and investing money into high dividend stocks both allow you to make some extra cash flow from your investment. If the stock also increases in price during that time then so much the better.
