Hi Hank,
That is a great plan.
I morph it by selling puts on dividend aristocrats or in the case of KMI a fallen dividend aristocrat.
If you spend your hard earned savings to buy a stock that pays a dividend yield that is acceptable,
I don't want to risk losing it.
I retired in 2016 and moved my 401 k to an IRA that allowed the selling of puts.
I calculate the net assigned price and then divide the dividend into that number. To be honest to get a dividend of 6% plus locked in for perpetuity (assumimg it does not get reduced of course - which can happen)
It takes some longer term patience AND some luck. It requires a short term dip during the expiration day, for it to get assigned.
Once that is established, I want to add it to my long running dividend revenue stream. I've talked to several who do sell calls and they often say - there shares got pulled.
They also say they keep the time just over 34 to 35 days.
It is tempting to add a bigger chunk of time to get that premium, but that more often than not results in being called.
I think the better approach is go and sell a covered call the week of expiration for the next month out in time. Still go up in strike price at the cost of some premium. Take a smaller premium but do it every month or
actually say 10 times a month. This can become the frosting on a good paying dividend, but in my way of thinking, it is NOT worth losing the good yield on the bird in hand so to speak. Protect those lucky assignments by going up in strike price and hope it doesn't catch a gear.
Now I look for dividend paying stocks that are out of favor, and try to accumulate them at below market prices. The premium does that and I do go far out in time to buy them.
When selling covered calls, I do the opposite. Go barely out in time, and at a higher strike price. It is just the frosting on a very good investment.
First and foremost I want to keep my good yield.
As I look for stocks to buy via put selling (that are out of favor). I would only consider selling covered calls on a stock that has been going up and is in favor.
I can't emphasize enough how hard it has been to roll my 401K monies into self directed high yielding dividend aristocrats paying 5.5 percent to 7.5 percent.
When selling a put 12 to 15 months out, it takes a bit of luck for the market to be in a selling mode or corrective wave for the expiration to happen.
So I'm protective of my holdings. The dividends happen every quarter. I want to add to that revenue stream not lose by getting what I call too cute. If I get a stock called from me, it will be a nice capital gain and I'll feel lucky to have clipped top money.
I have not yet sold any covered calls.
I'm now pondering where I or If I should sell some calls on the CVX and XOM.
I have now substantial gains on both. Once again I darn sure don't want to lose the underlying stock unless the gain approaches 8 to 10 years of accumulated dividends. At that point I consider ringing the bell.(looking at CVX 140 to 150's and XOM's at 85 to90's. Not ready yet.
I hope that helps.
I'm only telling you my thought process and I've pondered selling covered calls for several years now.
It seems that an additional 1 to 2 percent is safe and 3% plus can get you out of your shares and paying taxes.
Looking to sell XOM calls February 85's for 15 cents, better yet catch a run up and get that for the 90's?
If I'm going to lose my perpetual dividend revenue (at lower tax rates), it has to be a good/great capital gain.
If you get to trading, please post your trades so we can collectively get better at earning a greater income from our hard earned and saved money.
That is the value of SI. imo
Bob |
