Last year I decided to add options trading to complement DivGro's strategy of investing in dividend growth stocks.My options trading activity is focused on generating extra income. I sell covered calls on some of my DivGro positions and I sell put options on stocks I wouldn't mind adding to my DivGro portfolio.
I don't buy options and I consider myself a learner options trader.
In this article, I discuss my approach to using options to boost dividend income. After 15 months of executing this strategy, I'm happy to provide some insights and to share results.
Please head over to Seeking Alpha to read this article.In the article, I explain how I sell covered calls and secured puts to generate extra income on top of the dividend income that DivGro produces.
I share a case study of each type of option trade, pointing out some benefits and drawbacks of options trading as it relates to dividend growth investing.
Finally, I provide a complete summary of all the options trades I've executed since starting in June 2016. The summary is organized by stock, so it provides clues to which dividend growth stocks are suitable for options trading.
Thank you for reading! Please let me know what you think of this strategy. Do you sell covered calls and cash-secured (or naked) puts for income?
Hi FerdiS,
ReplyDeleteI like the strategy, and I enjoyed your article. To supplement my dividend income, I started trading options about 4-5 months ago - selling covered calls and cash-secured puts, just as you mention. I only sell 1 or 2 single-contract options a month at this point, as I dip my toes in the water. So far, it's been going well. I hope to start writing about it sometime soon. In the meantime, I'll keep checking in at DivGro, as I'm sure you have insights that should prove helpful to me.
Thanks for commenting, Engineering Dividends!
DeleteI think it is important to start slow and make sure you gain experience, expertise and confidence at a good pace. In time, you'll be able to increase your income and start reaping the benefits.
One of the reasons I like dividend growth investing (versus trading) is that it I don't feel I have to constantly watch the markets. Selling options is somewhat like that -- I "know" the possible outcomes and as long as I'm patient, the income will roll in. Buying options (which I've tried years ago), is the opposite. You have to watch the markets all the time! I'm glad I don't do that anymore!
Hi FerdiS,
ReplyDeleteI have been investing for the last 5 years only following dividend investing strategy. I am just starting selling put options... read quite a bit, opened a paper trading account for practise, and did my first put sell a week ago!
I was wondering if in addition of choosing stocks you want to own, you also look at some particular metrics? do you check IV, support/resistance levels etc... as a beginner I struggle to convince myself on which stocks are in the right condition for a option put...
Thanks
Hi, Fab -- thanks for commenting and congratulations on starting with options!
DeleteI mostly sell puts on stocks I want to own, especially if they're priced just above fair value. Selling put options on such stocks gives me an opportunity to pick up shares at or below fair value, if the premium is large enough. Of course, the put need to be assigned. With the market going up, that happens only occasionally. But I get to keep the premium!
I also sell puts on stock I wouldn't mind owning. That's a little different. I look for stocks with strong upward trends. If the trend continues, I keep the premium and move on to the next trade. If not, the option will be assigned and I'll follow-up with covered calls to (eventually) get rid of the shares.
I don't yet base my decisions on volatility, nor do I time my trades based on that. I'm not sophisticated enough for that (yet). I don't look at the "greeks", either. One day, when I have more time, I'll do a course so I can become a better options trader.
I do consider support levels to help me decide on a proper put strike price, but not so much resistance levels for covered calls.
Hope that helps!