Dividends And Covered Calls For Volatile Markets
Volatile market can be pretty hard to make money in. The markets will be up big one day and give it all back the next day. All and all it seems like nothing really happens. If you are trying to pick a direction it can be pretty challenging.
However, you can still make money, even when the rest of investors are panicking trying to figure out what is going on in the market. There are a couple of methods which can allow you to make money while stocks are volatile. These are called dividend investing and covered call writing.
When a company has stocks paying dividends they are constantly paying their investors money. These dividends can be pretty consistent, even when the market is going crazy. So by holding a stock that is paying out a dividend you can make some income off of your investment while you are waiting for the market to turn bullish again.
Another strategy is called covered calls. Covered calls can be pretty profitable and all you need to do is to buy a stock and sell call options on it. Calls give investors the right to buy a stock at a specific point in the future at a specific date. By selling these you can make cash flow up front, but are under the obligation to sell your stock if you get called out.
For example, say you own stock ABC and it is trading at $42 you can always sell the $50 call options on that stock and make some profit up front. If the stock stays below $50 you shouldn’t be called out and will be able to keep the stock, and sell another call on it if you wish. However if it does go above $50 you will have to sell the stock at $50, possibly losing out on a big move if the stock skyrockets to say $60.
If the stock really is staying in a trading range you can make a lot of money selling covered calls on it month after month. This creative strategy can really work out very nicely in the right circumstances.
There are plenty of other creative ways to make money in the market no matter which way it is going. By learning the stock market trading basics investors can greatly increase their profits and be prepared for all kinds of markets.