Investment Philosophy

The Dividend Guy wrote a comment to my post on researching my trades concerning what type of stocks I am looking for.

To paraphrase: He asked if I was looking for stocks as good investments to write calls against, or was I looking for option premium.

I think his strategy of buying stock in companies with increasing dividends, reinvesting those dividends, thus earning more dividends, is an excellent strategy. (I hope I got that correct, Mr. Dividend Guy). If your income stream continues to grow, the ups and downs of the market do not affect the strategy or your mental health.

If you Google covered call strategies, you will find most of them recommend buying stocks you want to own long term, then sell calls against them. I do not follow this advise for a couple of reasons:

  • The types of companies I would like to own stock in do not have much in the way of option premiums. I like steady dividend paying stocks without too much volatility.
  • It would such to have a stock you really like called away because it climbed above the strike price. Or paying good money to buy the option back so you can keep the stock.

My strategy is more of a short term, capture time premium and dividends, while limiting downside risk. I care very little about the underlying stock in my trades, other than the market thinks it is going somewhere in a hurry and is willing to pay a lot for the options on the stock. I try to lock up and overly large time premium or dividend for 30 to 60 days so that my profit is certain through a wide price range of the underlying stock.

Since I have been at this for a very short time, two months now, it will be interesting to see how my strategy works over a longer period of time.

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