Covered Calls And Dividends
Combining two different methods of making money in the stock market, covered calls and dividends can be a very effective approach. So what are these two strategies?
High dividend paying stocks are simply stocks that are paying a dividend (or a portion of their profits) to their shareholders. If an investor holds these stocks they can recieve some passive income from the stock market without having to take more risk.
This has made dividend investing the most popular way of investing for an income in the stock market, but it is not the only way.
Writing covered call allows you to make an even higher return on your money, but at a catch. Whenever you sell a call on a stock that you own you are giving another investor the right to buy your stock from you at a specific price at or before some point 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. However if you are not called out the call will expire worthless, which would give you the ability to sell calls over and over again. And The added risk also comes with a much higher potential reward then dividends will.
Of course not everyone is comfortable with this strategy. After all it could potentially make you miss a huge move in the stock if you sell a call right before the stock takes off. But that is the risk that comes with this investment. It can work very well if you are more focused on creating a consistent monthly cash flow off of your investments then shooting for a huge one time win.
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 those stocks an investor can create some passive income in the stock market.
