Have you ever wondered if you are maximizing your investment income? I will show you how you can create two incomes from one stock, maximizing your return while waiting for the growth to occur. You can do this with dividends and options.
Open an online brokerage account and get approved to trade options. This is a simple process, which can be done online. The application has a section to apply for options trading. Some brokerages will approve the account instantly.
Fund the account with enough money to buy at least 100 shares of stock. The amount will vary, depending on the stock you decide to buy, but keep in mind a $10 stock will cost about $1,000 and a $50 stock will cost about $5,000.
Search for stocks that pay a dividend. Free stock screeners are available on many sites on the internet. Some of the online brokers have them. Most sites that have free financial information also have a tool that will help you screen stocks. Yahoo has a simple screener that allows you to screen for dividend yielding stocks. Screen for stocks paying dividends at least quarterly. Look at the history to make sure they are paying consistently. It is not unreasonable to find a stock that is paying around three to four percent. Make a list of your top stocks.
Review each stock to find if there are options available on the stock. If you are using Yahoo.com to screen your stocks you can see if they are optionable by looking at the quote screen and selecting “options” on the menu on the left. You want to find a stock that has open interest in the thousands to make sure you will be able to sell options regularly.
Select and purchase at least 100 shares of your stock, so you can sell an option on the stock and receive your dividends.
Collect your dividends.
This is the first income stream from your stock. If you selected a stock that pays a four percent dividend you will make about one percent each quarter.
Sell a covered call on your stock.
This involves a little more work. When you sell a covered call you essentially are writing a contract that allows someone to buy the stock from you for a certain period of time. It is similar to a lease option on a home. Each quarter you can select a price, preferably above the price you purchased your stock for and collect a premium for agreeing to sell the stock at that price. In order to do this continually choose a price high enough that the stock will not likely rise to during the time period.
Repeat the process.
Each quarter you will be collecting a dividend of around one percent. If done properly you will also be able to collect an option premium of one to two percent per quarter as well, creating a second income stream from the stock for as long as you own it. Keep track of your progress and where your target price on selling the stock is. You should set some realistic goals that you can track quarterly and watch your portfolio grow as you now collect two incomes from a single stock.