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Jul
15
John Murphy
Time to Write Call Options on Dividend Stocks?
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This bull market has favored ConocoPhillips (NYSE: COP), Kraft (NASDAQ: KRFT), and Microsoft (NASDAQ: MSFT), among others.  What has taken the price up even higher than the liquidity of the bull market has been the robust dividend yield of each.  In a low interest rate environment, stocks with high dividend yields such as ConocoPhillips, Kraft, and Microsoft go for a premium.

But those days might be ending soon.

Many feel that the bull market is running out of steam.  Others are writing about an impending correction.  This has stock prices slowing down: ConocoPhillips is off for the last week of market action (chart below).  Microsoft and Kraft are both near 52-week highs.

The time appears to be ripe or writing covered call options on dividend stocks such as these.

“Writing” covered call options is selling options that gives the buyer the right, but not the obligation, to purchase the stock at a set higher price within a defined time period.  It is a low risk strategy according to Dr. Joseph Louro, an options expert.  Dr. Louro, head of InvestView (OTC: INVU), an investor education and financial technology firm, points out that the great majority of options go unexpired.

That is one of three ways shareholders make money from writing covered call options.

The first comes from selling the option itself.  Next, the one selling the call options continues to collect the dividend.  The last is from the capital gains from the sale of the stock is the option is exercised.  There are other ways, but these are the three major.

There is much to be said for income stocks like Kraft, Microsoft, and ConocoPhillips.

The bull market has been good to the shareholders.  The dividend yield treats them well, too.  Writing covered call options makes owning these stocks even more rewarding in a very low risk way!

 



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