Dividends4Life: Yet Another Portfolio Boost From Dividends

Yet Another Portfolio Boost From Dividends

Posted by D4L | Tuesday, April 20, 2010 | | 0 comments »

Investors typically view a big dividend as a defensive weapon, a means for generating income even when a stock isn't performing well. Some traders take dividend investing to an extreme level, employing a call-options strategy that, when it works, can juice a stock's yield even more. There is a risk, of course. In this case, the downside is, theoretically, all the way to $0.

This dividend-arbitrage strategy doesn't have an official name, but at its core is a basic covered call, an options trade in which an investor sells call options on shares already owned. Selling the calls obligates the investor to sell those underlying shares at a predetermined price on a preset date in the future. In return the investor collects a small payment—called the premium—at the outset.

Source: Wall Street Journal

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