Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘monthly income investments’

Writing Covered Calls With High Quality Stocks Using Volatility

This is a great strategy because it uses the highest quality stocks that high a high volatility.  I define a high quality stock as a stock rated 5 stars by the S&P rating agency.  As we know, when volatility is high you get more premium from selling calls against your stock.  This will increase your return on investment for covered writes.

Here is how it works:

  • stock volatility is higher than the market volatility measured by the S&P 500 index (SPY);
  • stock has high implied volatility to generate good call writing return on investment;
  • Stock pays an annual dividend whose yield is at least 3% or better.

Then, if not called out, you can rewrite the call month after month until you are called away.  This strategy will minimize the amount of time used in selecting stocks and managing trades.  This will also lower the stress involved with covered call trading.

To implement this strategy, you should look for:

  • A low to medium historical volatility between 20-40% but higher implied volatility which tends to generate more premiums;
  • A historical volatility of 30-60% with similar implied volatility as you will hold these stocks for several months – the high HV will provide more premium each month.
  • Lastly, do not try this strategy on a lower quality stock just to increase your returns – stay with the 5 star stocks.

The use of high quality stocks will lessen the number of potential stocks because you have preselected a stock list.  The high quality stocks are generally blue-chip stocks that pay a dividend.  I am not a fan of buy and hold investing but this strategy is an effective way to maximize monthly income from investments.

The high quality stocks or blue-chips tends to move less in price compared to smaller cap stocks.  These high quality stocks tend to outperform during periods of uncertainty in the markets.  This is why we use these stocks in this strategy as they can weather the market downturns and rise during a bull market.  this a nice strategy to include in your monthly income plan.

How to Get 50% of Your Stock Purchase in Monthly Income Installments

A covered call trade is a very simple instrument to increase your monthly income. The basic idea is to sell a call option for every 100 shares of stock you own.  By selling the call option, the investor receives a premium which is what our investors call monthly income or monthly dividend payments.  We sell new call options each month to create new income – month after month.  This is in addition to the current dividend paid by stocks on a quarterly basis.

Here is an example of what subscribers to the Get Rich Monthly Income Plan achieved in 2013:

Subscribers purchased Holly Frontier in January 2013 for $46.35 per share. So purchasing 100 share of stock will cost a total of $4,635 plus commission costs.  At this time, HFC was paying a $0.30 per quarter dividend for a dividend yield of 2.59%.  This is a nice yield on a fairly stable stock but it gets even better.  In addition to the $1.20 in quarterly dividends, HFC paid $2.00 more per share in special dividends.  This increases the total dividends to $3.20 per share in 2013.  The addition of special dividends increases the stocks annual dividend yield to 6.9%.  Wow, a 6.9% dividend yield is great in this low yielding stock market!

But it gets even better for Get Rich Monthly Income Plan subscribers.  They sold a call option on each 100 shares of HFC stock they owned each month of 2013.  Based on our results, this created a total of $1,985 for the entire year.  This created an average monthly income of $165.42 by selling the call option which created the covered call trade.  The total premium income of $1,985 is about 40% of the total cost of entering the trade – $4635 at the beginning of the year.  Therefore, investors received nearly half of their initial investment in HFC back during the year through a simple monthly covered call trade.

Now, subscribers can add the three sources of income – quarterly dividend, special dividends and covered call income together to create a Monthly Income Plan.  In total, subscribers received $2,305 in additional income from owning 100 shares of HFC stock in 2013.  This is an average of $192 in additional income each month of 2013. And, the $2305 in income is 50% of the total amount of the initial investment in 100 share of HFC!

Covered Call Write on JP Morgan Chase (JPM)

Covered Call Recommedation on JP Morgan Chase (JPM) currently trading at $31.30.

STRATEGY:  Look at the March 25 covered call. For each 100 shares of JP Morgan (JPM) stock you buy, sell one March 25 covered call option for a 29.40 (31.30 – 1.90) debit or better. That’s potentially a 5.4% assigned return in 32 days.

Risk:   The technicals for JPM are bearish with a possible trend reversal.  The stock is under accumulation with support at 30.11.  S&P rates this stock 4 STARS (out of five) – buy.  The stock has to drop 6.5% to fall to the breakeven level.
Protective Put:  Those seeking more protection may look at purchasing the March 2012 30 put at $3.15.  Sell the put when you exit the covered call position.
S&P Research Notes:  S&P maintains buy recommendation on shares of JP Morgan Chase and Co (JPM).  Q3 EPS of $1.02, vs. $1.01, misses our estimate of $1.10 on higher than expected loan loss provisions.  As we expected, investment banking and trading fell significantly from Q2. However, credit card revenues, net interest income, and mortgage fees were in line with our expectations.  Quality of earnings improved greatly as reserve releases were relatively small.  We lower our ’11 EPS forecast to $4.67, from $4.87.  We also reduce our target price by $5 to $47, based on a slight premium to peers 10.0X multiple on our forward four quarters EPS projection of $4.76.

 Check out the latest Monthly Income Plan for free.

Free Covered Call Trade on Yahoo

Covered Call Recommendation on Yahoo!


Look at the January 12.50 covered call. For each 100 shares of Yahoo (YHOO) stock you buy, sell one January 12.50 covered call option for an 11.25 (13.38 – 2.13) debit or better. That’s potentially an 11.1% assigned return.  The technicals for YHOO are bullish with a weak downward trend. The stock is under accumulation with support at 12.45. S&P rates this stock 4 STARS (out of five) – buy.

S&P reiterates buy opinion on shares of Yahoo (YHOO) . YHOO announces Carol Bartz has been relieved of her CEO duties. CFO Tim Morse continues in his current role and has been appointed interim CEO. The board is engaging an executive search firm to help identify CEO candidates. We are not surprised by this news. Bartz became CEO inJanuary 2009 and was widely criticized for not turning YHOO around. She worked to refocus YHOO, which is now being positioned as the “premier digital a media company,” but was being run by a combative long-time technology executive. We think this change makes sense and should be a positive for the stock.
For more monthly income investments, see the Get Rich Monthly Income Investments.

Monthly Income Investment Using Covered Call Trade on Deere and Company (DE)

Deere is currently trading at $73.83 and is rated a buy with 4 stars by S&P.  This is setting up nicely for a monthly income investment with a deep-in-the-money covered call.

Strategy:  Look at the September 70 covered call. For each 100 shares of Deere (DE) stock you buy, sell one September 70 covered call option for a 68.13 (73.83 – 5.70) debit or better. That’s potentially a 2.75% assigned return on investment. This gives you almost 8% downside protection for the next option month.   The technicals for DE are bearish with a weak downward trend.  The stock is under accumulation with support at 66.06.
The long-term investor can look at the December 70 call trading at $8.30 at this time.  This adds $2.60 more in premium compared to the September 70 call ($5.70).  The December trade will net a 6% return on investment if assigned.
Research Notes: S&P maintains buy opinion on shares of Deere (DE).   Jul-Q EPS of$1.69, vs. $1.44, is $0.09 below forecast, as 24% rise in equipment sales was partly offset by higher materials costs. Despite greater economic uncertainty, we see ongoing gains in demand for DE’s equipment. We also think its long-term trends are favorable, on growing needs for food, shelter and infrastructure. We keep our FY 11 (Oct.) EPS estimate at $6.40 and FY 12’s at $7.60. However, on reduced economic visibility, we cut our target price by $16 to $99.
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