How to Turn a Non-Dividend Paying Stock into a Dividend Paying Stock!

printing money, literally!
I got 2 words for you: Covered Calls! This is pretty simple really, and I’m surprised I only learned about this strategy for extra income recently. If you have 100 shares of a stock you like that doesn’t pay a dividend, take a look out in the options market about 30 days from now and see what purchasing a call option would cost for a few dollars higher from what the stock is at present. For example I bought PFE (Pfizer) at 40 and sold a covered call option for PFE @ 45 for 30 days out. (Yes, I know this stock pays a dividend of 3.11%, but what’s wrong with increasing my return even more?!)  When I sold my 11/16/18 option, it was 41 cents, or $0.41 x 100 = $41 in my pocket immediately! You read that correct, $41 dollars in my pocket when the sale was made into my cash account. I was agreeing to my buyer that I would give up any upside in the stock past 45 dollars, and would sell it to them for 45 dollars no matter if it hits 50 or higher between now and 11/16. For that risk, I took in a $41 dollar premium. I still have 2 weeks left to expiration. I  could also buy it back to get out, or “roll” to a future date that puts more money in my pocket. If PFE doesn’t end up above 45 by 11/16 I keep my premium and will buy another call option about 30 days out, say for 50. If it exceeds $45 dollars on or before 11/16 and I am “assigned”, I would simply sell the stock to said buyer and then take in a premium selling puts for PFE until I got it back, a topic for a future article. If you are interested in trying this trade with PFE on Monday, buy some PFE before their 11/8/18 ex-dividend date so you get to participate in their amazing 3.11% annualized dividend yield!
In the example above, someone could buy 100 shares of PFE for $42.93 and at the same time also sell a call option for 44.50 for an extra $20 credit. If you’re paying commission on your trades, it helps pay for that, and lowers your cost basis for PFE down to $42.73! Do this long enough and you really make some drastic improvements to the amount you purchased the stock for!
One thing to note is that not every stock you can think of is a good candidate for a covered call strategy. If the stock is extremely volatile, or you have reason to believe the stock is about to go parabolic then you will probably do better on just holding the stock and letting it appreciate. You ideally want to find a stock that you have a neutral view or one that might go down a bit over the next 30 days or so. To learn more about covered calls, check out some of the great content on investopedia: THIS IS NOT INVESTMENT ADVICE JUST SOME TRADES I’M TRYING AS I LEARN. STOCKS CAN GO UP AND DOWN IN VALUE AND OPTIONS ARE REALLY REALLY VOLATILE SO BE CAREFUL AND DO YOUR OWN DUE DILIGENCE BEFORE MAKING ANY TRADES! PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RETURN.

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