Selling covered calls

A business partner of mine was in touch recently. He wanted to ask me about the FIRE Revolution income strategy. His question was: “Given the press is reporting many big firms are thinking of not paying dividends – How does this affect your strategy?” No problem I replied. We specialise in selling Covered calls.

It’s a great question. The crash we have just been through was unprecedented in its speed and severity. There is no doubt that the drop in many shares will have hurt investors across the board. I strongly believe that a well-diversified portfolio will have held up reasonably well and the recent market rebound has certainly taken the edge off the initial falls. However, there is no doubt that income investors who rely on dividends have been hit with a double whammy. Not only have their stocks fallen in value. In many cases, the dividends have been pulled as well.

However, followers of the FIRE Revolution strategy have far less to fear in this regard than regular buy and hold investors. We receive up to four different income streams from our investment campaigns. Dividends are just one of them. Covered calls and their close relatives cash-secured puts are two others.

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We enter our positions using cash-secured puts. That brings in the first income stream. Then, once we own the shares we have the opportunity to pick up any dividends that are paid. That’s the second income stream. At the same time, we are selling covered calls.  That brings in an additional stream of income before we sell our shares for an agreed price. That’s the fourth income stream.

Although it’s unfortunate to temporarily lose the dividends. We continue to generate multiple income streams from the cash-secured puts and covered calls we sell.

In fact, they are often described as ‘Instant Dividends’. That’s because you get to select the amount you wish to be paid and it lands in your brokers account a day later. Now that’s a whole lot more rewarding than waiting for your favourite stock to start to pay regular dividends again.

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Third Friday Ltd are not regulated by the Financial Conduct Authority and the FIRE Revolution training programme is purely educational in nature. Under no circumstances do we provide any financial trading or investment advice. Any examples used are for educational purposes only and should never be construed as advice. We accept no responsibility for any investment losses you may incur. Please consult a financial advisor or other qualified professional if you are in any doubt as to the suitability of the strategies we teach.