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.
covered-call-strategy
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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