Below we explain the key differences of Puts vs Calls.

Understanding Options Basics

Options are derivative instruments used to speculate on or hedge against the future price movements of an underlying asset, typically stocks. They’re typically used as a vote of confidence or safety net (with married puts), to either accelerate gains on a stock you think will go up or down, or protect your stock holdings against a black swan event. 

• Option Contracts: An option contract offers the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price, known as the strike price, on or before a certain date, referred to as the expiration date.
• Premium: This is the price paid by the buyer to the seller (or writer) of the option. It’s influenced by various factors including the underlying asset’s price, strike price, time until expiration, volatility, and interest rates. Here’s a good resource on selling put options.

What Are Calls?

Call options give the holder (buyer) the right to purchase an underlying asset at a specified strike price within a set time period. Purchasing a call option is typically a bet on the asset’s price increasing.

Usage of Call Options

1. Speculative Bets: Traders buy calls when they anticipate that the market price of the underlying asset will rise beyond the strike price before the option expires.
2. Income through Writing Calls: Investors can write (sell) call options to generate income through the premiums received. This strategy works well in a flat or mildly bullish market.
3. Hedging: Calls can also be used to hedge against a downturn in a portfolio that includes the underlying asset.

Example of a Call Option

Imagine Apple Inc. (AAPL) is trading at $150. A trader buys a call option with a strike price of $160 expiring in one month. If AAPL rises to $170, the call option will allow the trader to buy the stock at $160, realizing a profit based on the difference minus the premium paid.

Watch Nate Bear explain a call set up on Advanced Auto Parts below:

What Are Puts?

Put options grant the holder the right to sell the underlying asset at a specified strike price within a set time period. Purchasing a put option is typically a bet on the asset’s price decreasing.

Usage of Put Options

1. Speculative Plays: Traders buy puts when they believe that the market price of the underlying asset will drop below the strike price before the option expires.
2. Earning through Writing Puts: Writing (selling) put options can be a way to generate income through received premiums and potentially buying the stock at a lower price.
3. Hedging: Puts are a common method to hedge against potential losses in a stock portfolio.

Example of a Put Option

If Tesla Inc. (TSLA) is trading at $800, a trader might buy a put option with a strike price of $750 expiring in three months. If TSLA drops to $700, the put option enables the trader to sell the stock at $750, thereby profiting from the decline, minus the premium paid.

Comparison of Puts and Calls

Strategic Implementations and Considerations

1. Covered Call: This strategy involves holding a long position in an asset and writing a call option on that same asset to generate premium income. It offers some protection against a decline in the asset’s price but limits the upside potential.
2. Protective Put: A protective put involves buying a put option for an asset that you own. This is used to insure against a significant drop in the asset’s price, essentially setting a floor below which you will not lose more money.
3. Straddles and Strangles: These are advanced strategies that involve buying a call and a put option simultaneously with different strike prices (strangle) or the same strike price (straddle), betting on volatility without predicting a specific directional move.

Check out our Options Calculator to help figure out the potential outcomes of different option plays. 

Conclusion

Puts and calls are fundamental components of options trading that offer traders and investors versatile strategies for profit and protection. Understanding the nuances between them and how they can be implemented to align with financial goals and market views is critical in maximizing their benefits.

The post Puts vs Calls Explained: When and why do you use these? appeared first on Investment U.

Chief Income Strategist Marc Lichtenfeld has homework for you…

But trust me, you’ll thank him for it.

In this week’s episode of Marc’s popular State of the Market YouTube series, he shares the best financial books for beginner investors who want to master their finances.

The market’s recent volatility has proved how valuable these financial books are…

Dismal forecasts from the Fed this Wednesday left many Americans uncertain about future job prospects.

And Thursday, we saw the worst single day for the markets since March.

Even airline stocks, many investors’ darlings for riding out the COVID-19 market response, dropped a shocking 11% or more.

One Reddit user in his 40s reported that he had just lost his life’s savings by betting 86% of his retirement on airlines.

And I’m sure he’s not the only one who’s lost their cool in this market.

The market’s recent swings are also very real, and very painful, for many investors.

Which is why it’s crucial to arm yourself with the right insight.

I remember when my parents were teaching me to drive. Before I could get my learner’s permit, I had to memorize every detail from the driver’s manual.

Long before I was authorized to get behind the wheel and practice, I was quizzed about right-of-way and was asked to draw maps of the roads in my hometown at the dinner table.

And it’s important to take the same approach with investing…

Before making my first trade, I brushed up on Marc’s investing philosophy and also dove into The Intelligent Investor by Benjamin Graham.

Your first few trades – and even the many others that follow – can open doors and offer you a lot of freedom.

But it’s very important to know the rules of the road to prevent a crash.

So take a look at the dedicated Financial Literacy section of Wealthy Retirement’s website…

Dive into Marc’s two No. 1 bestselling financial books, Get Rich with Dividends and You Don’t Have to Drive an Uber in Retirement, which won the Institute for Financial Literacy’s Book of the Year Award in 2016 and 2019, respectively… 

And catch up on the eight best financial books for beginning investors in Marc’s latest State of the Market video.

With the right knowledge and tools at your disposal, your road trip to a wealthy retirement will get considerably smoother.

Good investing,

Mable

Interested in the best financial books for beginning investors and hungry for more financial education? Make sure to sign up for Marc Lichtenfeld’s free eletter Wealthy Retirement and learn everything you need to know about investing in dividend stocks and more by subscribing below!

The post What to Read Before You Invest appeared first on Investment U.

Maybe you’re intent on securing a wealthy retirement. Maybe you want to leave behind a legacy for your children or grandchildren. Maybe you want to achieve a certain lifestyle.

We all have different powerful, personal reasons for investing. But in the end, we’re all here for one reason: to make money.

But you don’t need a lot of money to make money…

In fact, one thing I’m most proud of in my 13 years with The Oxford Club (the publisher of Wealthy Retirement) is helping people make money – even if they don’t have a ton of money to invest.

One of the most common questions I get is this: how should I invest $5,000 today?

To answer it, I took to my YouTube series State of the Market.

So if you’ve got a limited amount available to invest today (you can start with investing less than $5,000) and want to know the best place for it, click here and take a look at my free video.

And if you’re interested in becoming more financially efficient, take a look at my bestseller You Don’t Have to Drive an Uber in Retirement. In it, I explain ways to set up income streams and save on everyday expenses in order to live a happy lifestyle without breaking the bank.

I’ve also written about savvy budgeting and financial decision making many times in Wealthy Retirement. Try taking a look here and here to see if these pieces answer some questions.

Regardless of your reason for investing, I’m here to help.

So click here to see the channel, don’t forget to subscribe and let me know of any topics that are important to you in the comments.

See you in next week’s State of the Market.

Good investing,

Marc

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Hi Everyone, Marc Lichtenfield, Chief Income Strategist with The Oxford Club. Welcome to State Of The Market. Today I want to talk about something I’ve been saying for years…size doesn’t matter. I’m talking about dividends of course. Now investors love big dividends and really high yields. But when a company has a sky high yield, it’s very risky.

Think about it…many blue chips have a dividend yield of 3% to 4% right now. A slightly riskier but quality master limited partnership or REIT (Real Estate Investment Trust) is yielding 6%, 8%…maybe even 10% (if they really got beat up recently)…that is sort of the standard for a dividend yield. So if a company is yielding 20%, 30% or more, there is some serious risk there. Now that doesn’t guarantee that the stock is going to get hammered or that the dividend is going to be eliminated. But it does increase the likelihood significantly. So today I want to look at three of the highest yielding stocks in the market.

Now for starters, if you just google “what stocks pay the highest dividends”, most of the stocks that will come up have already cut their dividend or eliminated it. So the list that you find is not going to be particularly relevant. Today we’re looking at three stocks with the most current information. This is after they have already announced a new dividend or a dividend cut.

3 Stocks That Pay The Highest Dividends

1. Redwood Trust (NYSE: RWT)

This is a mortgage rate that yields 28%. And it actually raised its dividend in February to $0.32 a share from $0.30 (on a quarterly basis), which is unbelievable. But, the dividend was due to be paid on March 30. A few weeks before that, the dividend was delayed to June 12… that is not good. In fact, I have never heard of that in my career. Now I’ve been in the markets for 30 years and I can’t ever remember a company declaring a dividend and then saying “give us a few more weeks to come up with the money”. That just doesn’t happen!

I mean you have companies that eliminate dividends all the time, cut their dividends, but I’ve never heard of a company declaring it and then saying there is a problem. So we’ll see if it actually does get paid on June 12. If it does I would look for a dividend cut or even an elimination after that, because that is really a very bad sign that they had to delay their dividend.

Watch our latest State of the Market Video to find out what stocks pay the highest dividends.

2. Amplify Energy (NYSE: AMPY)

This is an oil and gas producer with a 30% yield. Now the 30% yield is after it already cut its dividend in March. So that dividend has been cut already and it’s still yielding 30%. This is a big yielding company… and it’s likely to do it again.

Here’s why… 

It paid out all of its free cash flow in dividends in the first quarter. Now this company is an oil and gas producer. In Q1, oil prices ranged from about $65 dollars and then fell down to about $20. In the second quarter (where we are now), oil prices are lower in the teens. So their free cash flow is likely to fall in the second quarter. It’s very likely to fall.

Again, this is because they already paid out all of their free cash flow in the first quarter. If they have less free cash flow in the second quarter and they’re paying a 30% yield right now, I think you’re going to get a dividend cut going forward. So don’t count on that 30%.

Finally, our last stock paying a high dividend…

3. Oasis Midstream Partners (NASDAQ: OMP)

I think this one is really interesting. Oasis Midstream Partners (OMP). Now they are a pipeline company. So this is different than an oil and gas producer in that it doesn’t matter if oil is trading at $65 or $15. It costs the same amount to transport it through those company’s pipelines. OMP has a 40% yield.

Now the company has not communicated with investors at all since February when it released its 4 quarter results. A lot of companies have come out with statements about the pandemic or the economic situation. OMP has not. They have been quiet. So we don’t know at this point what their financials are going to look like. Or whether their dividend is going to be cut. They haven’t said anything. But, it’s hard to imagine that a company with a 43% yield, in this economic climate is going to maintain its dividend.

Now I should point out, they actually could afford the last dividend that they paid, very easily. They had great numbers in 2019. Their free cash flow was double what they paid out in dividends. So they’ve got a nice buffer there. But, since we’re in the middle of an economic crisis and this company has a 43% yield, they could easily cut the dividend in half, still be yielding 20% (which any investor would be thrilled with) and save some money for a rainy day. Build up that cushion in case things get worse, in case their customers stop transporting oil through their pipelines or renegotiate contracts.

So, I do believe that even though their financials looked good in the last quarter and in the last year, a 43% yield is just too high. And to be honest, a yield THAT high, scares the bejesus out of me. I like high yields, but not that high.

Safe High Dividend Stocks

Finally, instead of asking “what stocks pay the highest dividends?”, you should be looking for high-yielding stocks that are also safe.

Next week, we’re going to look at three of the safest, high-yielding dividend stocks. They won’t be 43%, I can tell you that. But these are going to be very high dividend payers, that will allow you to sleep at night without worrying if your dividend is going to be cut.

So if you want to make sure you don’t miss that video, subscribe to my YouTube Channel and Turn your notifications on.

To stay up to date on all the latest dividend news, subscribe to my free Wealthy Retirement newsletter today!

The post What Stocks Pay The Highest Dividends? appeared first on Investment U.

And they can do so in an irrational and chaotic manner.

Since February 12, we’ve witnessed this unfold.

It feels like almost every trading session has brought at least a 2.5% move up or down.

And then, last week, this rose to a historic crescendo.

The Dow Jones Industrial Average suffered its largest single-day point drop ever and its biggest percentage decline since 1987.

Now blue chips aren’t merely at 52-week lows. They’re at levels not seen since July 2017.

Years of all-time highs have instantly been erased, with some sectors falling to prices not seen in decades.

But there was a beacon of light during the storm: gold.

The yellow metal’s price rose to its highest level since 2013. And my guest today, Rich Checkan, COO and president of Asset Strategies International, believes this golden run is far from over.

Late last year, Rich and I talked about our outlooks for the market and gold in 2020. And he’s been dead-on with his forecast.

That’s why I was glad he agreed to share his insights with Profit Trends readers.

In today’s Biz Now!, Rich explains how gold has performed in previous times of volatility… such as the Ebola, SARS and Zika outbreaks. These periods were most like our current COVID-19 pandemic.

He shares how much exposure investors should have to gold as portfolio insurance. And we talk about why owning physical gold is a better route for asset protection than owning shares of an exchange-traded fund.

Most importantly – and I can’t stress this enough – Rich explains how he knew this run-up in gold was coming, even though he didn’t know that COVID-19 was going to be the catalyst. And he talks about how much higher the precious metal is poised to go.

In today’s volatile markets, this is an interview every investor needs to watch… particularly if they’re looking for some insurance from any dip lower.

Learn more about wealth protection with precious metals by visiting www.assetstrategies.com today. You can also contact Rich and his team by calling 1.800.831.0007 or emailing infoasi@assetstrategies.com.

Here’s to high returns,

Matthew

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