Hey Traders,

During times of inflation, and especially during a bear market, it’s important to take a look at how you’re protecting your portfolio.

Sometimes that means buying puts to hedge … or perhaps it means changing up how you’re allocating your money.

One investment that can help you protect yourself against inflation is dividend stocks.

Now, dividend stocks might not sound sexy to an options trader.

But … you’d be surprised at how dividends can boost your options game …

What Is A Dividend?

First, let’s briefly touch on just what the heck a dividend is.

A dividend refers to when a company pays out part of its earnings to the company’s shareholders.

So, for example, a company might pay out a 2.5% dividend per share of stock owned (prior to the ex-dividend date).

So if you own two shares of a $100 stock that pays out a 2.5% dividend, you’d receive $5 simply for owning your shares.

Dividends on their own are a pretty solid way to hedge against inflation, especially if you own dividend stocks in inflation-resistant sectors, like energy.

(For example, Exxon Mobil’s (Ticker: XOM) recent dividend yield is a pretty nice 4%, with the shares currently trading at $87.55.)

Typically, dividends are paid out quarterly, so when you own a dividend stock, you’ll be paid this nice “bonus” four times each year.

Your Dividend Options

So what do you do with these dividends?

Well, you can reinvest them back into the stock, or pocket them.

Look – during inflation, owning dividend stocks is a smart move. They’re paying you money NOW, and they can be an integral part of a defensive portfolio. 

Now, buying dividend stocks may not sound like something you’d normally expect from an options trader.

After all, dividends are typically more of an “investment grade” buy, right?

Actually …

Dividend stocks give us some very unique opportunities, especially in the current market climate.

In fact, you can actually incorporate dividends into your options strategy …

Where they’ll help pay for your options, and by extension, pay for portfolio protection.

Normally, when you buy an option, what is the biggest factor working against you?

That’s right – time decay.

Time decay can take a good trade, and completely suck the profit out of it. 

So when you are buying puts to hedge – like people are doing now – you’re automatically locked in a battle against time decay.

But …

If you use your dividend payouts to pay for your protection puts, you’re mathematically giving yourself an advantage!

This “Dividend +” strategy (as we’re calling it here at Option Pit) can technically be used at any time.

But … When the market is going up, it’s easy enough to play directionally, or just buy stocks that are going up.

But right now … you need to be a little more clever.

And this dividend play works best when stocks are cheap … like they are now.

In fact, right now is the perfect time to use this trading trick because stocks are cheaper than they have been, but still paying crazy dividends!

Which means it’s possible to buy stocks that are paying out dividends, and use those dividends to pay for your portfolio protection, or even buy upside.

And when you know half or three-quarters of the position will be paid for by a dividend, it gives you much more flexibility and a much better chance of success.

While this might sound unusual, it is something our Pro members have done for years …

And it is something we will be incorporating into our Option Pit Mentoring program starting next week.

One example trade we gave away during our live event this past Wednesday involved buying a stock that pays out about a $0.75 dividend …

Then, you can use that dividend to pay for half of a straddle on that same stock!

So now you are long the stock … and you have downside protection (with the put), plus additional upside potential (with the call!).

When you think about it … it’s really quite beautiful …

Buy dividend stocks → Limit your risk → Pay for your protection → Get paid with profits.

Like I said, we’ll be kicking off a Dividend+ portfolio in our Option Pit Mentoring program, and we’ll be using a variety of dividend stocks and options strategies for similarly beneficial results.

If you want to see it in real-time (and follow along!), you’ll have to be a member.

Your Only Option,

Mark Sebastian