Monthly Options Series: Earn A Potentially Consistent 10% Income (June 2024)

Core Insights - The article discusses a monthly series focused on identifying stocks suitable for writing options to generate income, particularly in a challenging economic environment with inflation concerns and fluctuating interest rates [2][18]. Options Income Strategy - Selling options, specifically cash-covered puts and covered calls, is presented as a viable strategy for generating high current income despite the risks involved [2][4]. - The article emphasizes the importance of selecting fundamentally strong dividend stocks for long-term wealth building, while also addressing the need for current income [2][12]. Selection Strategy for Underlying Stocks - The selection process involves filtering stocks with a market cap of at least $10 billion, a daily volume greater than 100,000, and a dividend yield preferably above 1.5% [6]. - Companies must have a minimum of five years of dividend growth history, resulting in a shortlist of approximately 300-350 companies with consistent dividend payments [6]. - A dividend safety score is calculated based on various financial metrics, including dividend growth history, payout ratio, debt/capital ratio, and credit rating [6][13]. Option Candidates for the Next Month - Two lists of ten stocks are provided: one for writing PUT options and another for writing CALL options, with a focus on generating income without holding the stocks long-term [7][12]. - The article notes that current options premiums are lower due to a solid market uptrend and reduced volatility, necessitating caution in selling PUT options [8][10]. Stocks with Relatively Safe Dividends - A separate list of ten large-cap stocks is identified as having relatively safe dividends, suitable for writing covered-call options, aiming for a total yearly income exceeding 12% [12][13]. - The selection criteria for these stocks include low payout ratios, low debt, high credit ratings, and consistent dividend growth [13][15]. Additional Margin of Safety Strategy - The article suggests using a buy-write CALL option strategy with deep-in-the-money covered calls to ensure a margin of safety, especially in a potentially volatile market [16]. - This strategy allows for earning high premiums while also providing a lower cost basis if the underlying stocks are assigned [16].