Investors, Do you Want to Earn 12%-20% Yields... Right Now? (Option Selling Part 1)

Investors, Do you Want to Earn 12%-20% Yields... Right Now? (Option Selling Part 1)

In today’s low interest rate world it is more important than ever to look past traditional investing to achieve your required returns. With a small amount of effort investors have the opportunity to earn double-digit percentage rates of income.

To grow wealth the typical investors buys mutual funds, individual stocks and bonds hoping to earn a small amount of income and future capital appreciation. Over long periods of time these investments are considered safe and efficient ways to grow wealth and generate the necessary income to live on.

However, there is another way. Using the same safe large individual companies you are used to and a simple tweak I will show you how to generate income streams of 12% or more per year.

The companies I like to focus on for this strategy are safe, enjoy near-monopoly industry positions and provide a wonderful base which we will use to collect annual income payments up to 4 times as large as traditional dividends.

Examples of these companies include names like Intel (INTC) and Microsoft (MSFT). They each dominate their respective industries and are using their stable financial backing to expand into new markets as needed. A traditional investor will simply buy these safe companies for long term growth while collecting the consistent dividend yields of 2% to 4%.

These dividend payments are great but I would like to show you how to make them fantastic. The opportunity is selling “covered calls.”

The covered call strategy is simply buying shares of safe, dividend-paying companies, like Intel and Microsoft, and selling "call options" . By selling a call option you provide a speculator the right to buy your shares at a certain price during a certain time period.

It may take a couple of months to become comfortable with the strategy but I am sure it will change your whole perspective on investing for income.

Here is an example of XYZ Co:

Say XYZ is currently trading at $50 per share. You will buy 100 shares for a total of $5000. Then you will sell someone the right (but not the obligation) to buy them from you for $50 for 2 months until option expiration. The speculator thinks the shares will increase in value during this period and is willing to pay you upfront $125 representing an instant 2.5% yield on your shares. This creates an annualized return of 15% (since the option is for 2 months we can do this trade 6 times per year or 6 * 2.5% = 15%)

If XYZ is trading above $50 at expiration your shares will be called away from you at $50 returning your $5000. You keep the upfront payment and then you can start a new position in the same company or different company depending on the various market forces.

If XYZ is trading below $50 at expiration you keep your shares and you can make similar trades over and over again, generating double-digit annual yields.

By doing a bit more work investors can earn very attractive total returns and well as consistent cash income year after year.

Over the next several weeks I will be presenting more education regarding covered call strategy and then transition into live actionable ideas. Please let me know what questions you have and what additional information you would like to see in these posts. Thank you.

Note: Each option contract represents 100 shares so be sure you have a large enough portfolio where one stock position of $11,200.00 does represent too big of your investment pie. Only you as an individual can decide what percentage of your portfolio you wish to risk in any one company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.