Cash For Santa: Don’t Forget To Be Santa To Yourself

Up Your Cash Flows Even – In This  Anemic Market Cycle

By Steve Wightman, CFP

Author of Women, Wealth, & Wisdom; Unleash The Fire Within To A Life Of Purpose. C. 2011.

December 10, 2011

Could you use a little extra monthly cash for a second income in 2012? With credit card bills swelling in January from holiday purchases, why not give yourself a raise today? Did you know you can cover credit debt with covered call income? Here’s how.

 First, diversify your portfolio with a professional financial advisor then consider this with up to 10% of your portfolio: Sell rolling covered calls on a few of your equities – all expiring in less than 30 days. If you purchased equity 100 shares at 27, for example, sell a call at say 30. You’ll receive an immediate cash premium for each contract (representing 100 shares of stock). As long as your shares today are worth more than you paid for them, you always win! If prices remain flat or descend, you continue to roll covered calls month-month and collect premiums. If share prices increase at or above the strike price, you may be forced to sell your 100 shares (mercy me at higher prices) and find new ones.

 Over the long run, this conservative strategy can add double digits to your returns in any market and it works well with stocks or exchange-traded-funds too – especially inside an IRA where you won’t be currently taxed. Works best in a flat or declining market. Booster: If you are one of the millions who have capital losses from this year or carried forward from past years, you can offset your gains and you may owe little or no tax for trades you make in a taxable account – up to your loss limit. To learn more, contact Chicago Board Options Exchange, www.cboe.com, your brokerage website, or any stock exchange.