My goal with my different income-focused services is to help my subscribers earn more money than they would by following the old-school types of investment advice. I recommend higher yields in my Dividend Hunter service.
For my dividend growth newsletter, Monthly Dividend Multiplier, I do not settle for the 2.5% to 3% yields that you will find on most dividend growth stock lists. I see no reason not to earn 4% to 5% and still have above-average dividend growth. I follow a similar path with covered call recommendations in Weekly Income Accelerator.
I see promoted covered call trades cross my desk with return projections not much better than the 8% to 10% you could earn with my high yield Dividend Hunter picks. Why do more work to make the same money?
A couple of years ago, I launched my first covered call trading service. With covered calls, call options, you sell calls backed by owned stock shares. The call premiums and any earned dividends are yours to keep.
Here is the quick and dirty on how covered calls work.
Options contracts have specified strike or exercise prices and designated expiration dates. If the stock price is above the strike price when a call option expires, the option will be exercised, and the shares called away, replaced by cash at the per-share strike price.
The returns from a covered call trade will be the value of the option premium plus the amount the strike price is above the current share price if the option expires “in the money” (ITM). If the stock is below the strike price—”out of the money” (OTM) at expiration, you retain the shares in your account, and more calls can be sold in the following weeks.
I hope you picked up a bit on how covered calls work. The strategy is not hard to use, but the learning curve can feel steep.
When I first started making covered call trade recommendations, my target return was 1.5% per month. So, for a 60-day trade, I wanted to make 3%. This works out to 18% per year. I think that is an attractive target for a trading strategy where the returns primarily consist of cash from selling calls that is yours to keep.
A funny thing has been happening, starting in 2020 and continuing through at least the first half of 2021.
The market prices of options have been high, very high. If you are an option seller placing covered call trades, this is an excellent thing. It is possible to earn 2% to 3% or more per month in the current stock and options market, just from the option premium earned.
For example, I just recommended a covered call trade on American Airlines (AAL) to my subscribers. The calls expire in 37 days, and the cash return from the option premium is 4.0%. It seems impossible to earn 4% in just over a month on the shares of a solid company like AAL…but I am not complaining.
My point is that if you do not trade options, but have heard about covered call trading, now is the time to learn how it works and start making some trades and earning real cash in your brokerage account.