How to Implement a Covered Call Strategy

Editor’s Note: Analyst Andy Crowder is one of the best income experts that I know. And today Andy gives us a sneak peek into his strategy for helping investors vastly increase their income. The good news is, today is also the day we publish our “Best Stocks for 2014” report – which includes all the details on how to increase the income from your dividend stocks. Click here to find out how to claim your copy of this report today.
Today I’m going to make you aware of the single best opportunity to increase your income in 2014 and beyond.
Over the past eight months I have used this simple strategy to beat the market while simultaneously decreasing the risk in my portfolio. So far, the conservative income strategy has outperformed the S&P 500 by over 10%.
I’m referring to an option strategy known as a covered call, which allows you to collect extra income from a conservative dividend stock like AT&T, for instance.
When I mention “options” to many investors, they reflexively think of risky investments that are only for speculators.
Nothing could be further from the truth.
An option is simply a contract to buy or sell shares of a stock at an agreed-upon price (the strike price) at a future date. Options can be used to control large blocks of stock for a small price. But they also can be used to earn income or reduce risk. Best of all, options are traded as easily as any exchange-traded stock.
With a covered-call strategy, you buy shares of a specific stock and then sell a call option on that same stock. By doing so, you agree to sell the position at a future date and price to another investor. In exchange for giving the other investor the right to purchase the shares at a future date and price, you earn a premium in the form of a one-time upfront payment – the extra income.
So how does a covered-call strategy work with AT&T?
First, you need to own at least 100 shares of an AT&T. I say that because 100 shares of stock equal one option contract. Once you own the 100 shares, you’re ready to start generating extra income.
Now, let’s create the income-generating scenario: AT&T trades at $38.95, which produces the 4.6% yield. By selling one covered call contract against 100 shares of AT&T, you can earn an extra $23 every two months.
So every 60 days, you give yourself the potential to collect $23 against 100 shares of AT&T. Annually that equates to $138 of extra income. This strategy adds about 75% to the dividends AT&T will pay on that 100 shares this year.
So by implementing a covered-call strategy, you’ve taken an already high-yield income investment, AT&T, and boosted your potential income to $3.18 per share from $1.80 a share and your yield to 8.2% from 4.7%.
Are you interested in earning more income from AT&T? Would you like to earn more from other safe, blue-chip dividend stocks that you already own?
If so, then you can claim a free copy of our Best Stocks for 2014 report, which includes the full details on how to begin safely doubling your income immediately. Click here to claim your copy now.

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