How to Beat Inflation Tax, Bear Market Tax With Dividend Stocks, Covered Calls, Cash Secured Puts

Pick good undervalued dividend stocks with active and liquid stock options that can be used to generate weekly and monthly income by selling covered calls and puts options.

By Donald E. L. Johnson

Cautious Speculator

• Focus on generating target income, not on beating markets.

• Good jobs with employers that give good raises beat inflation.

• Trading covered calls and cash secured puts conservatively is a relatively low risk way to generate your target income.

Having written about and traded inflationary and volatile markets for almost 60 years, here's what I'm doing to beat inflation and the bear markets in light of my short life expectancy. I’m old.

1. Inflation is a tax. Cash is a hedge against that inflation tax and the bear market tax. So, relatively speaking, I have lots of cash.

2. The best hedge against inflation is a job with a company that will keep you up with inflation or help you beat it with timely promotions and raises. Job hop to beat inflation if that works for you. I work from home as an investor (speculator). Don't retire or plan to.

3. Bonds are rip offs for individual investors because of poor liquidity and transparency. The bid, ask spreads kill you. Buy Vanguard bond funds like BIV or BND if you have to be in bonds, which I'm avoiding.

4. Stay out of commodity and other futures and currency markets. They're very risky and they are for pros.

5. If you're under 70, learn to do your own trading by doing it now. You'll save a fortune in financial advisor fees and you'll achieve your target income. Don't worry about beating markets even though a lot of individual traders do.

6. My income strategy is to buy Dow Jones Industrials 30 and other high yield blue chip stocks and sell covered calls and cash secured puts on them for 8% to 15% annualized dividend and premium yields. I also sell cash secured puts on SPY, QQQ, IWM and XLE for income. Keep it simple. Avoid spreads. Just trade covered calls and puts on 10 to 20 stocks over and over.

7. Nobody can predict interest rates, markets or stock prices. All we can do is trade. Learn to read charts and use them while doing short-term options trades.

LINKs:

Home Page. See previous articles on other stocks and watch lists. If you read several of these articles, you’ll learn how this strategy is meant to work. No guarantees. Links to useful web sites are on the lower right corner of the home page. Scroll down.

20 Ideas for Adjusting Your Stock and Bond Portfolio, by Christina Lourosa-Ricardo.

Wars Breed Inflation, Rising Interest Rates, Market Turmoil

IBM: 3 ways to play earnings, by Matthew Smith.

Ways to use StockRover.com to analyze stocks

Calls vs Puts Options: What’s the Difference?

How to trade the wheel.

A video on how to place options trades on Think or Swim.

Beware. Like all investing, trading stocks and options is risky. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I own and/or have options positions on IWM, DIA and other equities. I reserve the right to trade any of the listed stocks and options at any time. I receive no compensation for producing this content nor for any links.

@realDonJohnson. Because I don’t want to litter subscribers’ in boxes with emails, I write only one or two newsletters a day. I’m active most days on twitter where I tweet about stocks, options trades and other topics.