So What’s an Investor to Do? Solution 2: Covered Call Contracts

How to Beat Low Yields

While the market is in the grip of economic repression, the lowest yields in 57 years, how does a small investor capture higher yields without exposing his life savings to the dangers of the stock market?

A tried and true strategy that has been around for decades is called writing covered call contracts. This strategy is similar to owning a house and renting it out. The homeowner realizes the capital appreciation or loss on the home but the rent cushions the loss and adds to the capital appreciation. In this case the asset is stocks that are rented out , the rent is the income from the covered call contract and in addition the stock owner receives dividends and capital gains from the stocks.

This is not an aggressive strategy and we only use it on a portion of a clients’ portfolio but we are seeing some significant returns over and above what we can secure from bonds or certificates of deposit.