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Covered calls are a great way to boost income from dividend stocks, balancing yield, risk, and capital preservation. Here’s a concise strategy tailored for dividend investors:

1. Choose Quality Dividend Stocks
   Pick stocks with stable dividends, strong fundamentals, and moderate volatility (e.g., blue-chip companies like JNJ, PG, or KO). Ensure the dividend yield is attractive (2-4%) and the company has a history of consistent payouts. Avoid high-yield traps with shaky financials.
2. Select the Right Strike Price
   Sell out-of-the-money (OTM) calls, typically 5-10% above the current stock price. This gives you premium income while allowing some upside potential. For example, if a stock trades at $50, sell a $55 call. Avoid in-the-money (ITM) calls to reduce the chance of early assignment, especially before ex-dividend dates.
3. Time the Expiration
   Opt for 30-60 day expirations. Monthly or quarterly cycles align well with dividend schedules. Shorter expirations (e.g., 30 days) maximize annualized premium income and let you reassess market conditions frequently. Avoid selling calls too far out (e.g., >90 days) to maintain flexibility.
4. Maximize Premiums, Minimize Risk
   Look for options with moderate implied volatility to capture higher premiums without excessive stock price swings. Aim for annualized returns from premiums of 8-12% in addition to dividends. Use a portion of premiums to reinvest or diversify.
5. Protect the Dividend
   Time your call sales to avoid assignment before the ex-dividend date. If the stock is near the strike price close to expiration, consider rolling the call (buy back and sell a new call at a later date or higher strike) to keep the stock and secure the dividend.
6. Monitor and Adjust
   Regularly check stock performance, market trends, and upcoming ex-dividend dates. If the stock surges, roll up the strike price to capture gains. If it drops significantly, hold or sell calls at a lower strike to recover losses via premiums.

Example
Own 100 shares of XYZ at $100, paying a 3% dividend ($3/year). Sell a 45-day $110 call for $2.50. You collect $250 in premiums (2.5% return, ~20% annualized) plus the dividend. If XYZ stays below $110, you keep the premium and stock. If assigned, you sell at $110, locking in a 10% gain plus the premium and dividend.

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