How To Get Started With Writing Calls

How do you get started with trading covered calls? Once you understand the principles of writing options, you must determine what stock to purchase for this trade. The simplest method is to start with a list of stocks. I suggest the S&P Dividend Aristocrats list. Since this trade requires buying stock, why not get paid a dividend in addition to the call premium. This is more effective when you continue to write calls on the stock month after month until you are assigned. This gives you a second dividend income to increase your monthly income stream.

The S&P 500 Dividend Aristocrats is currently a list of 42 companies that have increased dividends (not just remained the same) for 25 years straight.  Keep in mind just because they are on this list now, doesn’t mean in the future they will be forced to reduce their dividend.  Unfortunately during our last recession in 2008 many investors found out their dividend was cut on their once stable stock.  For example, Pfizer Inc. (PFE) and General Electric Company (GE) both cut their dividend, and were removed from the Dividend Aristocrat list in 2009.  In 2009 a total of 10 companies were removed from the list.  As you can see from the list of stocks, these aren’t exactly a list of highflying tech stocks like Apple (AAPL) or Google (GOOG). In fact most people consider these stocks boring, but boring is sometimes better.

The list below shows the stocks included in the Dividend Aristocrats list for 2011.  You should start looking at the company’s with a 4 or 5 star rating by Standard & Poors.  You can find a level of ease when a stock is rated a strong buy or buy by S&P.  There are 5 stocks rated strong buy on the list: XOM, WMT, KO, PPG, and VFC.

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