Put option dividend strategy

Join the NASDAQ Community today and get free, instant access to portfolios, stock ratings, real-time alerts, and more! Sounds nice, doesn't it? Like you can just sit back in a sunny lounge chair while the money rolls in. That's essentially what it is - an income stream that doesn't require work.

You may have even heard dividend income referred to as passive income. I suppose it is, if you have someone managing your portfolio for you. But for those of us outside the billionaire club that may not be able to afford the best money managers and don't trust the rest, generating portfolio income - especially enough to live on - can sometimes be a mental and emotional feat worthy of an Olympic gold medal or at least the bronze.

It only makes sense that the resulting, sometimes-not-so-passive income you generate should be as profitable as possible. Here's a simple, but effective strategy you can use to get more bang for your buck: VectorVest calls it the Double Juicy strategy. In a nutshell, it's a triple whammy - option premiums, dividends and a little capital appreciation.

When aligned correctly, you'll keep the stock for long-term capital gains more often than not , pocket the dividend check and collect nice, not-so-little bonus income from selling covered calls often making you more money than the dividend. If you've never heard of covered calls or thought they weren't for you, go here for a quickie lesson. It's not just buying a stock that pays dividends and randomly selling calls; this strategy is about the timing. When you do what you do.

Two mistakes that beginners often make are: Either one of these mistakes can hit you right where it counts, your bottom line.

If you are still short the call before the ex-dividend date, then it's often to the buyer's advantage to exercise the day before the ex-dividend date and be the owner on record to receive the dividend. The exception would be when there's considerable time value left in the option. Time value is lost upon early exercise, so if the time value lost exceeds the dividend gained, the stock is much less likely to be called away.

In order to collect the dividend, you must own the stock by the ex-dividend date.

Within the one-year period listed, we would have missed the first ex-dividend date, but we could have picked up the stock anytime afterward. To keep the math simple, we'll say we bought 1, shares allowing us to write 10 covered calls contracts. Options are traded in contracts that consist of shares, so 10 contracts would control 1, shares of stock. Don't sell the calls at the open of the ex-dividend day.

The price of the stock trades down at the open to compensate for the dividend being paid. The dividend payout was once again. Let's break that down. Not really a big deal. What can be a big deal are taxes. If you've owned the stock less than a year, you will pay a higher tax rate. Providing this isn't a holding that you have enormous capital gains in, the increased cash flow should compensate for higher taxes that may be incurred.

Let's continue, then we'll net everything together. We get right back into JNJ after it's called away. Since it is below the strike price sold, we keep the full option premium, the dividend and a negligible amount of appreciation. We repurchased at a higher price. This resulted in 3. By selling covered calls on the ex-dividend date, we had a high success of keeping the stock, keeping the dividend and of course, we keep the covered call premium whether the stock gets called or not.

Selling Puts Of High-Dividend Stocks For Maximum Yield | Seeking Alpha

Had we ignored the timing of our calls though, we could have missed out on the dividends entirely. At first try, this might seem complicated. It's a little like watching a kid try to step on the escalator for the first time - every time they go to take a step, they think they've missed their chance, but eventually they get the timing just right and enjoy the ride. You will too, and when you do, your passive income will be all the more worthwhile.

JNJ was selected due to its high rating in the VectorVest System. If you'd like to know what your stock is worth, how safe it is and whether to buy, sell or hold, you can analyze any stock free at www. The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Why selling puts against dividend paying stocks is a win-win strategy | Hello Suckers

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