Jeff Miller | Jun 28, 2013 02:23AM ET
In the last few weeks, nearly every income-oriented strategy has crashed. Investors who need reasonable yield have chased all of the usual suspects. The result?
Yield-oriented investments are no longer safe. They have become both expensive and risky.
Investors in some bond funds are about to learn that they can lose more than a year's worth of yield in a single month. The bond investor is not accustomed to losses. The story is playing out in REITs, MLPs, and utilities. Even the "all-weather" funds created by the best and the brightest have fallen on hard times. dividend investor link. Choosing the Right Call
There is no exact formula for choosing the right call to sell. Here are some rules that have worked:
Getting the most from this strategy means taking what the market is giving you. You cannot be blinded by headlines. The market fluctuations give you a chance to add positions at great prices. The key week is right after options expiration. You will typically find that some of your sold options have expired worthless and some of your stock has been called away. How should you trade this?
While many were fuming about "Uncle Ben" we just looked for opportunities. Here are two examples:
These are tactical examples, but completely typical of trading each month. There are short-term winners and losers on stock price, but the stream of dividends and call premiums meets the yield objective.
Risk Profile
Any investment balances risk and reward. Most of the yield plays have proven to have excessive risk. I favor the enhanced yield approach for the following reasons:
How well can you do with this program? I have some significant advantages over the individual investor and I am not allowed to advertise results. My team is always following the markets and we have possible trades queued up for our entire group. We can sometimes get good pricing for investors since they are part of a larger group. (The guys in the pit will not respect your "two lot"!) We also have proven methods for stock and option selection.
Allowing for all of this, I expect that a hard-working, intelligent, and courageous investor can clear 8-9%.
If you are worried about a sideways or slightly-declining market, this strategy will work well.
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