Wednesday, December 1, 2010

The Point is not all up markets make call income

Earlier today I commented on the market being up 200 points. It ended up another 25% I
I did not recommend selling. If you think highs are in the air then puts and stops are appropriate. 

However, my point is that today gave me little opportunity to write calls but I looked anyway and so should you. 

I want to help you learn about stocks on which to write calls and we are just beginning.
First you always want to buy a company that makes money and share it with you in a dividend and has a solid balance sheet. 

The differences between stocks on which you write calls and stocks that qualify as dividend machines are:
  1. Stocks on which you write calls have a dividend but do not have to pay out a minimum of 3%; the payout can be 1%.
  2. Stocks on which you write calls should have a beta above 1.
Beta measures volatility which provides the opportunity for another person to think the stock will go a whole bunch higher. This is your chance to sell that trader a call. A nice piece of this picture is that many more stocks qualify as covered call stocks than qualify as dividend machines so never be afraid of losing a stock to a call. Another stock is always available to buy. Losing a dividend machine is more painful. 

Each week I profile a company you can consider as a dividend machine. 

As the market provides, I will from now on provide ideas on stocks that are good companies, that pay a dividend, and that provide opportunities for covered call income. 

Very Truly Yours,