The end goal of many dividend investors is to generate enough passive income to cover their living expenses.
There are two ways to reach this goal faster: have a larger portfolio or generate a higher portfolio yield.
In today’s video, I’m going to explain how you can generate higher portfolio income by implementing a covered call option strategy. This video talks about:
– What is a covered call options strategy?
– How to select which covered calls to sell
– Covered call example #1: AT&T (T)
– Covered call example #2: Microsoft (MSFT)
– Covered call example #3: Facebook (FB)
To understand what a covered call options strategy is, you need to have a fundamental understanding of stock options. Here’s the formal definition of a stock option.
A stock option is a contract between two parties in which the stock option buyer purchases the right (but not the obligation) to buy/sell 100 shares of an underlying stock at a predetermined price (called wwthe strike price) from/to the option seller within a fixed period of time.
If the contract allows the optionholder to buy the security, it is a call option.
If the contract allows the optionholder to sell the security, it is a put option.
Each stock option corresponds to 100 shares of the associated security, which is called the “underlying.” This is a very important concept to understand, and makes the covered call strategy unsuitable for investors that have only small amounts of capital invested in the stock market.
In a covered call options strategy, you sell a call option for a security that you already own at least 100 shares of. This allows you to receive the option premium upfront in exchange for a capped upside.
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If you’re interested in learning more about the covered call options strategy, we encourage you to watch this video and read this comprehensive guide: https://www.suredividend.com/covered-calls-guide/
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