I Know Finance Well

Two ways which an investor can make some passive income off of their stock are through covered calls and dividends. Getting paid to hold your investment always makes it much nicer and makes it feel like it actually is an investment.

So what are they? Well let’s look at dividends first. When a company offers a great dividend paying stock they pay their investors a small percentage of their profits. By keeping a dividend stock an investor can profit month after month from their share of the dividends.

If you happen to have enough money lying around you may actually be able to invest in a company that pays out a dividend and live off of that dividend by itself.

Dividends can help investors make extra money from a stock that they own, however there are other ways to make money. There is another more profitable way of making money and it is called writing covered call. When an investor writes covered calls they sell another investor the right to buy their stock at a specific strike price on or before a specific date.

The biggest advantage to this is the huge payout that comes with it. An investor can recieve a pretty nice premium each month simply by selling covered calls.

However you have some risk when you sell a call. If the stock makes a big move in the near future that investor would be forced to sell their stock and miss out on a big chunk of the move. So basically you take on some risk of missing a profit in the future for some money now.

Each investor has to decide whether it is worth the risk or not to sell covered calls. Selling covered calls and investing into great dividend paying stocks both allow you to make some extra cash flow from your investment. If the stock also increases in price during that time then so much the better.