Covered Calls, Dividends & Passive Income

I’m on my second month of tracking my passive income. I had a lot of my dividend paying stocks hit this month so these results will not be repeated in July. So here we go:

June 2008

• Interest Income: $8.77

• Dividends: $116.04

• Covered Call Writing: $438.05 (see below)

Total $562.86

Looks good right? Wrong!! STLD had me on a crazy rollercoaster. Shortly after I bought the stock there was a nice big sell-off, so I closed my position effectively wiping out the $438.05 I made. Huge lesson learned. I let my long-term love for steel get the better of me so I was blinded to the short-term volatility that comes with only wanted a stock for writing Covered Calls. If I were buying STLD for the long-term through dollar cost averaging that would be fine, I can take the short term hit because as I continue to accumulate stock my costs basis will adjust down. My intention here was not to keep STLD long-term; I already have other steel stocks in my portfolio. By writing covered calls I am buying a large block of stock at once to write a call to generate cash flow. Some volatility is ok. I have downside protection because of the premium and if the stock price drop is not that big I can simply write another call next month, but STLD had me terrified.

I need to digest this and be a little more cautions before I jump into a stock. I let my excitement get the best of me. At the time of writing this, STLD is making somewhat of a comeback. I believe they report earnings on July 21^st. I’ll keep watching the stock. I still think they are going to have great results.

On a positive note I did upgrade my savings account. I bank with Washington Mutual (don’t own the stock) and they have a 3.30% Online Savings. This is a huge upgrade from my statement savings. I don’t know why I didn’t do this sooner. I guess I never paid attention to it. Anyway in July I should see much better interest.

There is another Blog a like to read it called Get Rich Slowly. The author recently had a post about other high yielding savings accounts. Here is the link: Get Rich Slowly Savings Accts. You may want to check it out.