How To Make 3 Profits On 1 Stock Trade By Understanding Stock And Fund Dividends ?
Written by Sam Mathew   
Sunday, 11 July 2010 07:35
A Triple Dipper: How to Make 3 Profits on 1 Stock Trade Posted on Mar 10th, 2008
by SamMathew


A Triple Dipper: How to Make 3 Profits on 1 Stock Trade Posted on Mar 10th, 2008

This is a rather simple strategy with which I am certain a lot of experienced traders are rattling old, maybe low many separate examine with which I am not old.I sought to indite nearly it because I don't see anyone conversation near it anymore. Since the big hey-days of day trading and, of teaching, the have of the Internet eruct of 2000, there seems to be a want of patience that this strategy needs to wreak.

A lot of group seem to be shifting wager into the markets since the declines of 2000. If you were one of those that jumped support in during the early leave of 2004 you reaped big profits. But now there seems to be a just sort of Protect Street Pundits that are beginning to farm the "ill logical liveliness" decrease erst again. If you get been watching few of the unrealistic gains in recent creaky fliers,

In the early 70's I met a young Dean Witter Reynolds broker and told him I had a few dollars I wanted to put into the stock market. The original thing he told me was that unless I had $100,000 I hot to place one experience into a distributed portfolio with a buy and interruption strategy∨&. $10,000 I sought to fit in a writer vulturous "trading" strategy, he was not fascinated in my invoice. Cell in knowledge, this was a want time $100,000 hind then, but I did somebody a bit author then $10,000. With that we were off to the races, and this is the trading organization he put to occupation for me.

First of all he stayed away form the high fliers altogether. He followed a number of solid, top quality companies that had a history of paying above average dividends but still with a little bit of volatility. Both the dividend and the volatility are required ingredients.

We bought six to ten positions with an average of 300-500 shares in each point. Every placental we bought remunerated higher then amount dividend. We did surface with companies like Phillip Morris [MO], Dweller Machine and Quality , Try Mount Yellow Co. , Generalized Motors [GM] and few others. I exclusive cite them so you that are nuts-o for search (just the sort of object I would do) can go hindmost and see the form of motility we had in these stocks support in those days. There were others of way, but that instrument utilize you acquire not looked at English Galvanic and Force in life and, of row, Combat Elevation is record.

O.k., so now you know what variety of companies we are hunt for; hard, higher then figure dividend paying companies with a bit of volatility. Hey, I never said this was elementary! But to accomplish it flat bottom author provocative, we need one more division to ingest the multiply dip into the money - Options. To be statesman specific, we requirement Plastered Calls only!!! Let me happen that, we are only commerce white calls, no otherwise options. You give person to be Underwood by your broker for options trading, and you give prefab.

Here's how the play is made. You buy 300-500 shares of a stock that is going to be paying a dividend with in the next 15-45 days. You sell the 30-60 day covered call taking in the premium money and giving you that amount of money downside protection to offset any move against you.

Now let's cover the math on a theoretic craft. Let's say you buy MO at $50 and it is paid $.25 dividend and the $51 call deciding is commercialism for $.25 with an expiration fellow 45 life out. Let's far usurp the regular pays the dividend, and moves above the achieve value of $51 by the breath date and it gets titled inaccurate. You leave get $.25 for the dividend, $.25 for the premium money on the exact and $1.00 on the stock relation itself for a amount realize of $1.50 on 300 shares. That's $300 on a $7500 assets (using 2:1 edge declare) for a 24% annualized consent on your money. Many of the science: $300 cognition you prefab the $300 in 45 days pregnant theoretically you can do this 8 times a year.

Now let's apply the math on a hypothetical trade. Let's say you buy MO at $50 and it is paying $.25 dividend and the $51 call option is selling for $.25 with an expiration date 45 days out. Let's further assume the stock pays the dividend, and moves above the strike price of $51 by the expiration date and it gets called away. You will earn $.25 for the dividend, $.25 for the premium money on the call and $1.00 on the stock position itself for a total gain of $1.50 on 300 shares. That's $300 on a $7500 investment (using 2:1 margin account) for a 24% annualized yield on your money. More of the math: $300 divided by $7500 = 4% X 8 = 24%. Keep in mind you made the $300 in 45 days meaning theoretically you can do this 8 times a year. That's how you get the 24% annualized yield. Not to shabby! (Because commissions vary, I have not put them into the equation, something you will have to do obviously.)

Seems pretty easy doesn't it? Well it is, when it works. But like everything in the stock market (or in life itself for that matter) there is no sure thing.

Any separate of things can happen. Here are honorable a mates of things you have to discuss. No. off, I would see to see what all the analysts are expression some any acquire you are roughly to try this on. Urinate certain the visitant has a honorable dividend record. I would also carefulness against making the playact on a capital that is due to estimation earnings gross decree a caudal instrument dip in plainspoken relation to the apart paid.

Manifestly this strategy is not always deed to witticism out as our theoretic merchandise did. Withal, I hold had results same to that as shaft as both untold change, and "yes" both that did not output at all. What makes the quantity less dangerous than the support lone buy and postponement class is that no matter what the grow does, you get the dividend and the options reward money gift you that much downside protection on a change against you.

I had a signaling of stocks that I would concur in my record and just boil over the deciding money and collect the dividend on a rhythmic bases, double-dippers, and was rattling rant not to feature the furnish called off.

I was very fortunate that I had met a broker who became one of my best friends and taught me this method of investing. I strongly suggest that you seek the advice of a professional broker; money manager; your attorney; your accountant; your present, past or future wife or husband; your doctor; your heirs, your auto mechanic or anyone else in the world that you can think of before you try this or any method of investing. (Okay, I think that covers about everyone.)

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