Johnson & Johnson: How To Decrease Your Investment Returns

Writing options for great companies such as Johnson & Johnson (JNJ) is a sure way to decrease your returns. Option writing seems to be a fashionable concept nowadays among yield-hungry investors, but the best long-term returns are still generated with the help of the basic strategy of buy and hold.

It was only at the beginning of this year when I first stumbled into articles about how to use options to generate more income. Writing covered calls and cash secured puts are the most commonly used strategies by investors. The main idea with a covered call option strategy is that it makes it possible for an investor to increase "dividend" yield. For instance, if you had invested in JNJ and you are not fully happy with the current dividend yield of 2.5%, you could write covered calls in order to generate more income (i.e. increase your yield). The cash secured put option strategy on the other hand is mainly used when an investor would be willing to invest in a stock but considers the current price as too high. By using the latter option strategy, an investor is paid to wait for a better entry price. The investor who is using these two options strategies can be sort of considered as an insurer, and the other investor who is buying the underlying option you have written can be considered as an insured. The price of this "insurance" is the premium. (The previously mentioned links provide already a comprehensive introduction to options, so if you are interested more in option writing, I recommend reading them.)

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