OP Mentoring will have a Div+ Portfolio preview this Wednesday at 7pm.  Be there!

Yo Pit Crazies,

I spent my 4th of July with friends and dinner was in the boathouse …

Pretty nice!

I also spent the morning helping fix up an old barn …

So, two totally different experiences on the same day.

Kind of like comparing 2021 and 2022. Same stock market, but different returns..

That led me to thinking…

The second half of the year is afoot. Most of the stats chunked around the internet tell us that big drawdowns in stocks are followed by rallies in the back half of the year.

From a news point of view, I can see what is happening. Inflation should start to slow as things get back to normal. While the geopolitical situation will likely not improve, many other market impacts could

It is wise to look for income and more defensive stocks as a way to play the upside.

Guess what? Dividends create an income stream.

And there are ways to make it even better.

Let’s check it out.

Stocks Pay Dividends, Options Don’t

A key difference between call options – which are long stock equivalents – and stocks is that call options do not pay dividends.

The only way to make money buying calls is through capital appreciation. The calls have to grow into bigger calls. That is a technique we often use at Option Pit.

Selling calls is always an income play versus the margin at risk. Selling naked calls generally requires 50% of the value of the strike price. So selling the $10 strike on a $1 call could generate $400-$500 in margin at risk.  

That reason is why a lot of investors sell calls against stocks. That trade, called the covered call, does not generate any more risk dollars but does create an additional income stream.

Income versus capital appreciation is the age old question. 2021 was a capital appreciation year. 2022 is shaping up to be an income generating year, as stock prices don’t want to stay below 3,700. Dividend streams can pay for option positions. Covered option sales can generate higher returns with volatility this high.

That is a concept I will explore in depth on Wednesday during the first ever Div+ Portfolio Workshop.

To Your Trading Success

AG