[BUM]

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Originally Posted by Beachbumz Hi All! I've been thinking about this for a while now. Has anyone used an options strategy with dividend paying stocks? There are two ways to approach this: First, lets say that you are VERY interested in owning XYZ at a 4% yld, but the current yield is 3.6% and you think that is too pricey. You write (sell) uncovered puts for the number of shares you wish to buy at a strike price 10% or so below the current price. If the price drops below your strike price, you buy the stock (and keep the premium). If it doesn't you keep the premium for a nice percentage profit. Second, after buying the stock, you write (sell) covered calls on the stock that are 10% or more out of the money. Ideally, the stock moves up slowly and closes below your strike price at expiration. If the stock stays below your strike price, you get the premium, which will increase your return by, 1-3% a year or so. If the stock rises above your strike price, then you have sold the stock at a 10% plus gain, received the premium and a dividend payment or two. (I'm looking a 3 to 6 months out on the options). If this happens, then you've got about a 15 to 16% gain or so in 6 months or less. That's enough for 4% withdrawals for the next 3 or 4 years (assuming the money was then put into an investment that covers inflation), and that should be plenty of time to find another opportunity or what for the stock to drop back down. Better yet, you then go back to the first strategy. Of course, none of this can be done with mutual funds, so it's only for the stock pickers among us. I welcome any experiences or thoughts on these strategies. Beachbumz 8)

Hi Beach!

I think about covered put writing from time to time. There is a broker in the VA Tidewater area who has made a career out of exactly that. I though of opening an accout a couple of times but now that his minimum account is $250,000 - no way. But the concept is very enticing. You make money if the market is up or sideways. He recommends never optioning a stock you wouldnt want to own.

His example of the worst mistake he has made was having HD "put to his client" at a few dollars over market price. So we immediately started selling calls against the stock and eventually sold out at a profit. Then started all over again.

He claims his avg. client returns are above 10%. He says that that clients respond to profits and his track record is very good. Client list keeps growing.

He says 99+% of his activity is strictly writing covered puts.


I'm still interested.


BUM