вЂњcoveredвЂќ calls) generates income that is similar to receiving a dividend. Selling call options against your pre-existing stock positions (a.k.a. Covered Call Writing Creates Dividends Out of Thin Air The sold call option is considered вЂњcoveredвЂќ because you only sell calls against stock that you already own. In return for assuming this obligation, the seller receives money up front. Conversely, the seller of a call option has the obligation to sell his stock at the strike price if the buyer exercises his right. The buyer pays money to obtain this right. The buyer of the option is said to have a long position, while the seller of the option (the writer) is said to have a short position.ДЄ call option gives the buyer the right, but not the obligation, to purchase a stock at a certain price called the вЂњstrikeвЂќ price. And there are two sides to every option transaction - the party buying the option, and the party selling (also called writing) the option. There are two types of options, calls and puts. This fact allows you to sell an option without owning it first. As such, options are not physical things like a barrel of oil or 20 tons of pork bellies, but rather are contracts between two parties that confer rights and obligations. Options are derivatives - they derive their value from an underlying stock and represent the right (but not the obligation) to buy or sell 100 shares of the underlying stock by a predetermined date (expiration, which is the Saturday after the third Friday of the month). Options are an incredibly flexible tool that investors can use to reduce risk and generate extra income all at the same time. Yes, there is a way, but it requires a bit of imagination. So, is there any way to enjoy the wealth-compounding benefits of dividends with your current dividend-deprived portfolio? Description of Stock Options Furthermore, you bought the stocks for a reason and you may not want to sell them before your investment thesis plays out.

If you donвЂ™t have any in your portfolio, I strongly recommend that you get some.Д«ut what if you already have a stock portfolio composed of stocks that donвЂ™t pay dividends or, if they do, donвЂ™t yield much? Selling everything and starting over with high-yielders is one possibility, but in a non-retirement account the tax consequences of selling stocks could be counterproductive. This is essentially a way to generate an ongoing stream of income from stocks that donвЂ™t pay dividends or only offer a small yield.Дividend-paying stocks are wonderful investments, as I discussed yesterday. One strategy I favor right now is covered calls.

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