By employing options for a stock investor, this diversifies the investor’s sources of income. This is important especially under the current rising rate environment, a simple diversification strategy of stocks-bonds may no longer be helpful. Under the current stock market context where the equities are beaten down, being an option seller can continue to generate some additional income for the investor and improve the performance from the equities portfolio.
Investors may also employ strategies to, for instance, sell covered calls on a partial of the portfolio, say only 50% of the stock portfolio. This allows the investor to receive some option premium while also being able to participate in any upside for the remaining 50% of the stock portfolio.
Hence, diversification of the sources of income through both stocks and options allow investors to continue to build up the size of the portfolio, of which part of it may eventually be deployed into dividend stocks to generate regular cash inflow to cover for daily expenses upon retirement. Ultimately, generating additional income is the key towards achieving our eventual goal of financial freedom.
Through employing relevant options strategies, it may allow us to still eke out gains amid low expected returns from the individual stocks, like in the current climate that we are facing. This is how we make the most when markets offer the least.
If you are keen to learn more in detail on how to use options as a stock investor to build up your investment portfolio, you may watch this video to find out more. Alternatively, come join us in the upcoming workshop to learn the basics of Options 101 in-person with us!