Selling naked puts on dividend stocks is one of my favorite income-generating strategies. I've been selling options since the end of March 2019, and as a seasoned dividend income investor, I find options as one of the best inventions of our time.
3 Trades to Generate $165 - $350/mo Selling Cash-Secured Put Options
Income from options regularly puts food on our family table (or at least buys some candies).
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I sell puts and calls. Also, I do verticals on the S&P 500 (SPX), and trade futures on Gold, and other instruments. the most important - I find a lot of fun there.
Investment Goal #7 - Selling Puts to Own / Generate Income
Recently I was reading a good article about 3 Trades to Generate $1,000 Every Month Selling Puts article, where the author talks about selling puts on Microsoft, BP, and XLF stocks. The author also finds it will require about $46,100 to generate $1,020/mo or 2.21% yield/mo.
I decided to mirror this approach, but instead of selling puts on MSFT, BP, or XLF stocks, I will use stocks I hold in our portfolio - AT&T, Pfizer, and Cisco Systems. By the way, all three are great dividend stocks that combined are paying dividends every month of the year.
Generate monthly income selling puts on AT&T (T) stock
At&T stock price as of February 7, 2020
T probably is my favorite stock to sell options on it. There are a few reasons I like T - it is a component of the S&P 500 composite index, it has raised it's dividend for 34 consecutive years, and it has one of the highest dividends on the S&P 500 list.
I have been selling puts on it since March or April 2019. T is the stock I have in my dividend stock portfolio and it contributes a little to our dividend income in February, May, August, and November.
You could sell a put with March 6 expiry with a strike price of $38 for about $0.49. That gets you $49 and makes about 1.28% return is less than 30 days. Or about 15.36% annualized. Break-even: $37.51
If T stock closes above $38 on March 6, you keep the premium and start over. If the stock closes under $38 you get assigned but check your break-even points. There are several options you could use not to get assigned, like a roll down or roll forward. Or you could take stock, collect the dividend and sell covered calls. Win, win, win
Remember, you are selling one contract, 100 shares of T stock, make sure you have $3,800 cash or buying power (margin) to buy 100 shares if assigned.
Generate monthly income selling puts on Pfizer (PFE) stock
Pfizer stock price as of February 7, 2020
Just like AT&T, Pfizer stock is also a component of S&P 500, plus is on the list of Dow Jones, even more, Pfizer is part of the Dogs of the Dow list (highest dividend-paying stocks from Dow Jones index), the dividend is above 3%, and what's great Pfizer has increased its dividend for the past 9 consecutive years.
Pfizer is one of the latest additions to our dividend income portfolio. I started to acquire Pfizer stock for the so-called Partnership fund, which basically means I'm buying once in a month Pfizer stock for my better part.
I have been selling puts on Pfizer stock since January 2020. Pfizer stock also contributes some bits to our dividend income in the following months: March, June, September, and December
You could sell a put on Pfizer stock with March 6 expiry and strike price of $38 for about $0.68. That gets you $68 and makes about 1.78% return is less than 30 days. Or about 21.36% annualized. Break-even: $37.42
If PFE stock closes above $38 on March 6, you keep the premium and start over. If the stock closes under $38 you get assigned but check your break-even points. There are several options you could use not to get assigned, like a roll down or roll forward. Or you could take stock, collect dividend and sell covered calls. Win, win, win
Remember, you are selling one contract, 100 shares of PFE stock, make sure you have $3,800 cash or buying power (margin) to buy 100 shares if assigned.
Generate monthly income selling puts on Cisco Systems (CSCO) stock
Cisco stock price as of February 7, 2020
Just like AT&T and Pfizer, Cisco Systems stock is also a component of S&P 500, and just like Pfizer, Cisco systems are on the list of Dow Jones, and like Pfizer is part of the Dogs of the Dow list, the dividend is just above shy 2%, I would like more, but as we can generate extra income from puts and calls it's quite good actually. Also, Cisco systems have increased dividends for the past 9 consecutive years.
I have been adding Cisco Systems to our dividend income portfolio since January 2020, we are waiting for dividend income in the following months: January, April, July, and November
You could sell a puton Cisco systems stock with March 6 expiry and strike price of $48 for about $1.21. That gets you $68 and makes about 2.52% return in less than 30 days. Or about 30.24% annualized. Break-even: $46.79
If CSCO stock closes above $48 on March 6, you keep the premium and start over. If the stock closes under $48 you get assigned but check your break-even points. There are several options you could use not to get assigned, like a roll down or roll forward. Or you could take stock, collect the dividend and sell covered calls. Win, win, win
Remember, you are selling one contract, 100 shares of CSCO stock, make sure you have $4,800 cash or buying power (margin) to buy 100 shares if assigned.
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Selling naked puts on these three dividend stocks will generate $238 in income against $12,400 in possible stock purchases. That's a 1.9% return in just 30 days or 22.8% per year.
Let's compare how much we would make if instead, we invested $12,400 to buy 100 shares from each of these companies. In 2020 you would get about $208 dividend from AT&T, $152 from Pfizer and $140 from Cisco systems. Combined $500 (before tax) or about a 4% dividend yield per year. Selling options would give you about 5 times more, but as usual, nothing is granted.
When speaking about holding shares and getting paid dividends, we could sell covered calls to boost income, but that's already a topic for some other article.
