Here is something I like to do that tends to limit risks in this highly volatile market.  First, look for a high yielding stock.  Second, purchase the stock around a level of support. And thirdly, sell an in the money call option against the stock.  

Let me share a recent example of a trade I made.

I purchased ERF on Decmber 8th. at $18.89.  The stock pays a dividend of about $.31 per share and the ex dividend date was December 10, meaning I qualified to receive the dividend.  The day I bought the shares, I sold the $17.50 Call, which was due to expire on December 19th.  I collected $2.20 for the call options, meaning I received a credit in my account of that amount for each share I owned.

How did it work out?

On December 18th, one day before options expiration, I closed out the transaction by selling the stock at $19.03 and purchasing the call options at $1.70.

The net result is that I earned a total of $.53 per share.  And I will collect a dividend of $.31 per share.

Now I know this does not sound like a monster grand slam, but in two weeks time, I earned a return of a little over 3.3%.  The return will be around 4.5% if you include the dividend.

If you consider that a money market will yield under 2% … and that is for a year, then I suppose that earning 4.5% in two weeks really begins to look good.

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