Options are a brilliant trading tool, even for those who may not consider themselves to be “traders.” After all, where else can you use a variety of different strategies on just one type of security to keep the returns rolling in on a regular basis?
There’s nothing wrong with buying stocks. (That’s because you can collect a “double dividend” by selling calls against them and, oftentimes, collecting a scheduled dividend payout as well.) But you might see your portfolio doing well when the market’s up, and then most of your holdings collectively dropping when the market plummets. And if you’re only holding stocks, you’re missing out on a whole lot of potential profits that you wouldn’t otherwise have access to.
While our goal as traders and investors is to pick securities that remain strong no matter what else is going on in the world, inevitably you’ll have a dud (or two, or five, or 10…). And that means you need to set aside a portion of your portfolio where you’re both spending a small amount of cash to get positioned for more and scheduling regular paychecks from the market in the form of selling to collect premium.
And only options let you do that, month after month (or even week after week).
So as 2011 turns into 2012 this weekend, if your resolution (once again) is to have a prosperous new year, be sure to include “trading options” as a tool — in fact, perhaps the only tool you need — to help you reach this goal … and surpass it!
To get you started, we here at Stutland Volatility Group have four options trades — using a variety of sectors and strategies — to set you up for some great options gains during the first part of the new year. Let’s take a look at them now…
Trade 1: T Long Call
Buy the T March 28 Call for $2.10 with T trading @ $30.00
AT&T (NYSE:T) stock offers the best of both worlds for investors. Its 6.0% annual dividend yield makes it a great income trade, while the company’s fundamentals are setting the stock up for growth and capital appreciation in the coming year.
By buying the T March 28 Calls, traders can control the stock with minimal cash upfront. This call is likely to expire in-the-money (that is, with the stock trading above the $28 strike price) because the near-certainty of AT&T’s dividend in this uncertain market makes the stock very attractive.
This translates into significant demand for the stock each time it dips and its yield increases. Should this call expire in the money, investors can exercise their option to buy the stock at $28, locking in a yield of 6.3% in 2012.