Covered Calls Vs Dividends
Two ways to pull out a monthly cash flow from your investment are covered calls and dividends. But which of the two methods are better? What has the most potential?
Well, usually covered calls will be much more profitable then simple dividends. However that does not mean there is not a price to pay, covered calls do come with some additional risk.
When you start writing covered calls you are giving another investor the right to buy the stock at a certain price. So if you have the stock and it is trading at $35 you could sell the $35 call on it and that would make you obligated to sell your stock at $35 if the buyer of that option should choose to exercise their right.
What does that mean? Well it means that you could potentially lose a large amount of money in potential profits. 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 very powerful. 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.
Dividends on the other hand normally give you a much smaller return, but you are not risking anything by recieving 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 which method is better? Is it better to sell covered calls or simply by some dividend paying stocks. Well why not combine the two strategies. 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.
