Investors looking to create extra income from their AMD stock may want to consider using options to generate a 20% “dividend” on their investment.
One strategy to achieve this is by selling covered calls on your AMD stock. This involves selling someone else the right to buy your shares at a specific price (the strike price) within a certain timeframe. In return, you receive a premium. If the stock price remains below the strike price by the expiration date, you keep the premium as profit.
For example, let’s say you own 100 shares of AMD stock trading at $50 per share. You could sell a covered call with a strike price of $55 for a premium of $2 per share. If the stock price remains below $55 by expiration, you keep the $200 premium. This represents a 4% return on your investment of $5,000 ($50 x 100 shares).
If the stock price does rise above $55 and your shares are called away, you still make a profit. In this scenario, you would sell your shares for $55 each, earning $5,500. Subtracting your initial investment of $5,000, plus the $200 premium received, you end up with a total of $5,700. This represents a 14% return on your investment.
By using covered calls, investors can generate additional income on their AMD stock while potentially reducing downside risk. It’s important to carefully consider your risk tolerance and investment goals before implementing this strategy.