Best options strategy for income
October 9, 9: Last Updated October 9, 9: Many investors use call options to enhance their investment income. This can be a very good strategy, particularly in volatile, sideways markets like the one we are currently experiencing. Selling options against existing positions boosts your overall return, and provides a best options strategy for income of protection but not much in a declining market.
We will not cover the basics of call-writing strategies, but here are five strategies to consider if following this approach. This is perhaps the key thing to remember. Many option writers see high premiums on certain volatile stocks usually in the technology or biotech sectorsand buy companies they are not familiar with and then sell options on them. They then find the volatility of best options strategy for income stocks a little too much to take.
Remember that call writing is an income-generating strategy, not a strategy to add even more stress to your investment life. Stick with companies that you would be happy to own anyway. Keep the basics in mind, and do not reach for returns by buying smaller, more speculative positions. Since call writing is designed to boost your income, selling options on companies that pay dividends can potentially boost it even more.
If you are selling options on a regular basis, every three months, those positions that have not been called away will pay you a dividend.
It is a nice little bonus in an income-enhancing plan. For example, Apple Inc. Another key to an options strategy is to limit your downside risk, and what better way to do that than to use companies that have no debt and lots of excess cash? Still, slightly above the money call options can return about 4. The cash should provide a cushion in a down market, allowing you to continue selling calls if your position is not called away.
Options premiums depend on volatility: The more volatile the stock, the higher the premium on options. As mentioned, many small and mid-cap stocks are very volatile, but we do not suggest using a call-writing-income strategy on these.
Instead, find large companies with stocks that are exceptionally volatile, such as Netflix Inc. Since Netflix reports earnings on Oct. At the time of writing this, a nine-day in-the-money call option nets you an eight-per-cent return.
The company could miss estimates and fall sharply, but you at least have an eight-per-cent cushion on the drop, and you can always sell more options if that occurs. You can get options best options strategy for income on some companies of three or four per cent or more in a very short period.
Some stocks will swing wildly, of course, but stocks on average do not move that much in a month. We have found that using one-month options works best. If you set up a diversified portfolio, most of the time you will just collect premiums, which will enhance your income.
Most investors find options confusing, but they really are not. And the possibility of significantly enhanced income makes it worthwhile for investors to at least best options strategy for income the opportunity that exists. Filed under Investing Investing Pro. Use stocks you would be comfortable owning This is perhaps the key thing to remember.
Suddenly, a relatively secure blue-chip stock turns into an income machine Remember that call writing is an income-generating strategy, not a strategy to add even more stress to your investment life.
Three behaviours investors should avoid, especially in turbulent times 5 things to do before watching your portfolio crumble 5 risk management investing strategies that could blow up in your face Sell options on stocks that pay a dividend Getty Images Since call writing is designed to boost your income, selling options on companies that pay dividends can potentially boost it even more.
Suddenly, a relatively secure blue-chip stock turns into an income machine. The more volatile the best options strategy for income, the higher the premium on options Target companies with high amounts of cash and little debt Another key to an options strategy is to limit your downside risk, and what better way to do that than to use companies that have no debt and lots of excess cash?
Choose stocks that are more volatile than the market Bloomberg Options premiums depend on volatility: Only use short-term options This is the second-most important point behind owning companies you are comfortable with. Not that long ago lithium was the it-mineral but miners are finding it harder to raise capital now that fears of over-estimated electric-car uptake have crept onto the scene.
Maryanne and Albert can have a very comfortable retirement if they maintain their modest best options strategy for income of life for another two decades. If you are not astronaut material, fear not, Aurora Station, billed as the "first luxury hotel in space," may be for you. Best options strategy for income Financial Post on Best options strategy for income.