Thursday, March 21, 2013

Passive Income in Stocks & Options

Over the course of the past few years my activity (# of trades I make) and duration (how long I hold positions) has changed a lot. There are many reasons for this, but most of all the original reason I got involved in the financial markets was to find another stream of income. Due to my personality when I start something I get a little obsessive which was great for getting up and over the learning curve quicker than I probably would have otherwise.

The past 2 years or so my involvement has been much more passive as I have put less positions on and with longer duration. Now part of this is the fact that the markets have progressively calmed down in terms of volatility but the other part is my desire to manage a more passive income stream. But another part of this has been due to the fact that the majority of my income that I am using to trade and invest with over the past 2 years is in a self directed IRA.

My wife and I are now in a position where we have a large stash of cash that we had set aside to buy a house this year. We have since decided to put that off and are now looking for other ways to put that money to work instead of sitting in the bank, earning half of a percent interest. It really is a joke. I share this because we are now going to put some money in to some high yielding REITS. Of course I will try to sell some covered calls against any position that we put on.

Creating Passive Income with Stocks & Options:

Our overall goal is to generate $200 a month in passive income. We are only going to put about $15-$25k to work. But with the two candidates that we are looking at, it seems reasonable that we could do this. I have traded NLY for the past two years, and it has a great dividend. It is currently yielding around 11%. We are also looking at an ETF that invest in a variety of REITS, its ticker symbol is REM. It too is yielding around 11%. 

Based on a 11% return and not taking into account any premium we can collect from the calls we sell against the position. In order to generate $200/month in passive income, we need to invest about $22,000. Now let me also point out that most of the REITS out there that I know of pay quarterly dividends and not monthly. But the income target is taking the total dividend received in one year and dividing in by 12. 

The other thing this does not contemplate is the re-investment of those dividends. We have not decided if we will re-invest or pull the dividend payment out every quarter and look for another spot to put money to work.

Anyways, just thought I would share another view of how to use stocks and options to accomplish certain income goals. Before I go, I must also point out that there is always a possibility of the stock or ETF trading lower in price and could lead to a loss of principle.

But you know what they say "without risk there is no reward".

Good Luck Trading!

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  1. I think it's a little easy to become obsessive about something you're passionate about. Making money online, from home (your office, your car...anywhere you have a computer) is a dream for a lot of people.

    So, whether you are trading, or investing, or working through an online internet marketing service ( like AgencyRiches ) you have to be able to take a few risks. It's exactly as you said...without risks, there are no rewards.

    1. Hey Will, I totally agree with you. And don't take my post in the wrong way...I am still obsessed with the ability to make money from a computer from anywhere in the world.

      Thanks for the input!

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