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What are the investment strategies you are having?

Strategy: I decided to invest into high quality dividend growth stocks.
 

Reason: To get paid regularly regardless of what the stock market is doing and regardless of what the stock price is. If you buy a growth stock and plan selling a portion of it to generate income and the stock drops, you will be selling at a loss or not able to sell. If a high quality dividend growth stock price drops, it doesn’t matter to me, because every three months I receive my dividend which is same every three months no matter what the stock price is and on top of that, every year, the company increases the dividend, so my dividend income growths annually.
 

Strategy: I created a watch list of 60 optionable high quality dividend growth stocks.
 

Reason: First, I go to a David Fish CCC high quality dividend growth list, pick 60 dividend champions, challengers, and contenders. Study these stocks to learn as much about the companies as possible. I also pick stocks which trade options (they are optionable).
 

Strategy: I then trade a strategy, some call a “Wheel”. The strategy consists of :
 

  1. Selling cash secured puts against those stocks, collect premiums, and do is as long as I get assigned to the stock and buy 100 shares of underlying at the strike price. For example, I like a stock ABC currently trading at $30 a share. I sell 26 strike put and collect 0.36 premium (or $36 dollars). If the stock stays above strike price, the put option expires worthless and I keep the premium. If the stock drops to or below strike price, let’s say to $24 a share, the option will be executed, I will be forced to buy 100 shares of ABC at $26 a share, and still keep the premium collected.
  2. When I buy 100 shares, I hold the stock and collect dividends.
  3. While holding the stock I start also selling covered calls. I keep selling covered calls and collect premiums as long as I get assigned and forced to sell the stock. For example, I was forced to buy 100 shares of ABC stock at $26 a share. It currently trades at $24 a share. I sell a call with strike price at 27 a share and collect 0.24 (or $24) premium. If the stock stays below 27 strike, the call expires worthless (and I can sell a new one in the next cycle) and keep the premium. Let’s say the stock moves higher to 26 a share, so I sell a new call (or roll the old one) to 28 strike and collect another premium. Once the stock moves above the 28 strike, the call will be executed and I will be forced to sell 100 shares of the stock at the strike price (in this example for 28 a share).
  4. Once the stock is gone, I go back to step one, completing the “Wheel” strategy.

 

Reason: My ultimate goal was to create a strategy which would generate income no matter what the market does. If you buy a growth stock which doesn’t pay a dividend you are at mercy of the stock market. The stock may go up over time (and it will) but you lock your money into a stock for a long time while waiting for the price appreciation and I didn’t like it. I wanted to be paid while waiting for the price appreciation. On top of it, I wanted to monetize my stock holdings. Like having a rental property renting it to tenants, I wanted to use options to “rent” my stocks and collect rent (premium) to boost my immediate income. I can then take that income and either re-invest it to buy more shares, or pay the bills, or spend it in any other way without a need of selling my “rental property” to generate cash. You won’t achieve this with growth stocks. In order to generate cash, you have to either sell a portion of your holdings (which has tax implication) or go to work elsewhere to get more money to invest (yes you still can trade options, but you will miss the third source of income – dividends).





2 responses to “What are the investment strategies you are having?”

  1. sean green says:

    I love the wheel strategy.

    1. But you can collect dividends whilst trading the wheel strategy too?

    2.What time period options are you selling, ie. weekly , or monthly?

    • Martin says:

      You can collect the dividend only if you own the stock, so if you want to collect it, you have to plan your trades to make sure you will have the stock by ex-date. In that case, I would sell and OTM put to make sure I get assigned before ex-date and then start selling OTM or ITM calls (depending on the overall market outlook).

      I usually sell 35 – 45 day options and although mostly monthlies, it doesn\’t matter if you use weeklys or monthly options as long as the expiration is 35 – 45 days away.

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