Strategies For Income Investors

Posted on August 31, 2010
Filed Under Investments | Leave a Comment

Investing into stock for some extra income has been a popular strategy for a while. If you do have a little extra money saved up or if you ever plan on investing money into the market for an income there are a couple strategies to help you out.

 

1. Invest Into Dividend Paying Stocks

 

The first thing that you can do is to invest into dividend paying stocks. A dividend stock is simply a stock that pays you small amounts of money at a consistent rate simply for holding onto them. They can be a nice little bonus to traditional stocks and if you invest enough money it can actually add up.

 

The main advantage is that you won’t risk anything by recieving the dividends.

 

2. Covered Calls

 

Another strategy to make money off of a stock that you already own is called covered call writing. When you sell covered calls on stocks that you already own what you are doing is selling someone else the right to buy the stock from you at a specific price on or before a specific date in the future.

 

For instance if you own a stock that is trading at $48 and you sell the $50 call option on it you make some money up front. However if that stock should go above $50 before the option expires you would get called out and have to sell your stock at $50.

 

Now that might not be so bad, if you bought the stock at $48 then you would profit by selling it at $50 and you would profit by the call that you sold as well. Now there is only one downside which is you may miss a nice sized profit. If that stock heads up to say $60 and you had sold the $50 call then you would have missed a good sized profit because you would have to sell the stock at $50.

 

On the other hand if the stock stays below $50 by the time the option comes due it will expire worthless and you will get to keep the stock and the profits from the option. If you wish you could then sell another call option on the same stock to make even more money. So, you have to decide for yourself if it is worth it. But as far as I am concerned it is.

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