Covered Calls Vs Dividend Stocks
Covered calls and dividends are two different ways which you can make consistent money off of a stock that you won. But which way is better? What is the most profitable?
Well, 9 times out of 10 a covered call will be immensely more profitable then dividends. However there is one big disadvantage to selling covered calls, it can limit the amount you can make off of your stock.
When you began covered calls writing you give someone else the right to buy the stock at a certain price. So if you own the stock which is trading at $35 and sell the $35 call on it you would be obligated to sell your stock at $35 if the buyer of that option should choose to do so.
What does this mean? It simply means that you could potentially miss a pretty substantial move in the price of the stock. No matter how far up the stock goes you would be forced to sell it at $35, so the missed potential profits could be enormous.
On the other hand it can be very powerful. If the stock falls down below $35 or even just stays at $35 chances are you are not going to get called out. Because of this you could sell calls month after month and make great incomes off of your investments.
On the other hand dividends usually pay out a much smaller percentage, but you are also not risking anything new from them. Companies simply pay out a small portion of their earnings to their shareholders these dividends come regular and you are not risking missing a profit if the stock shoots up.
So which method is better? Does the higher return of selling covered calls mean that you should not look for dividend paying stocks. Well what about combining them. Not everyone is comfortable with covered calls, but by combining covered calls with high dividends paying stocks you can potentially increase the return you can make through income investing.
