As a DIV-Net member and passionate investor in dividend growth stocks, I tend to focus on the safer side of investing. I focus on the long term and select stocks that have a strong history of growing dividends that is often regarded as a safe form of investing. Sure it has its ups and downs (as dividend investors can attest to these days), but overall it has proven to be a very successful strategy. So then why a post about covered calls?
Interest really. I love the investment process and try to understand as many strategies as I possibly can. Therefore, I have been researching the covered call concept in the past few weeks to see if there is any place for it in my portfolio. Here is how investopedia defines covered calls:An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This is often employed when an investor has a short-term neutral view on the asset and for this reason hold the asset long and simultaneously have a short position via the option to generate income from the option premium.
As a dividend investor, I am obviously attempting to grow the income in my portfolio. As you can see by the definition, covered calls are intended to use the long positions you hold in a particular company to generate income from other investors who buy the right to your stock if it hits a particular price. In other words, you get paid a premium for some level of risk.
Seems pretty simple at the high level. So I did some further research and identified this list of both pros and cons of investing in covered calls:
Pros:
Cons:
Overall, although covered calls are a much simpler option strategy, there is just so much to consider when employing the strategy that I am not sure I have the time to employ it, in addition to the regular management of my portfolio. If you find yourself still interested, then please check out Dividend Growth Investors' guest post on my blog here.
This article was written by The Dividend Guy. You may email questions or comments to me at info@thedividendguyblog.com.
The Dividend Aristocrats Ranked By Quality Scores: November 2024
-
The S&P 500 *Dividend Aristocrats *Index contains 66 dividend growth
stocks called the Dividend Aristocrats. With a few exceptions, the Dividend
Aristocra...
1 day ago