Holding low-yielding shares? Here’s how to boost dividends up to 35%—no buying or selling needed.
We’ll use boring ol’ SPY—SPDR S&P 500 ETF Trust (SPY)—as our first example. The fund yields a sleepy 1.1%, yet it’s the most owned ticker in America.
Here’s how we fix SPY’s yield problem.
On Monday, I received an email from OptionSignals, the timing system I developed for Contrarian Outlook readers who write covered calls and sell puts to generate income. OptionSignals tells us when it is a promising time to write calls or sell puts on an index, fund or individual stock.
OptionSignals also provides up to three actionable trades per signal. For example, here it is providing me with three call-writing ideas for SPY:
When I click the link to the first “short term” income idea, the tool provides me with everything I want to know about this call option, including:
- The odds that the call will expire worthless—which is important if I prefer to keep this position. OptionSignals is telling me it’s a coin flip that these shares will be called away from me.
- If they are called away, then I will enjoy a 0.84% total return. (When writing above the current price, we keep the upside up to the “strike price” of the option—which is $636 in this case.)
- The “YieldBoost”—our enhanced yield earned by selling the option—is a seemingly modest 0.77%, but wait! That actually annualizes to a stupefying 35% thanks to the short timeframe. These short-term options lose value fast, which is ideal to us as sellers.
If my strong preference is to keep the SPY shares, then I’ll scan OptionSignals for higher strike prices. Here, when I move up to the $645 strike for SPY, I have upgraded my chance of keeping the shares to 79%:
The “catch” is that my tradeoff is a lower YieldBoost—0.20%, or 8.9% annualized. No, it ain’t 35%, but it is still much better than the microscopic 1.1% organic yield provided by SPY!
Why did OptionSignals flag SPY as a prime candidate for call writing?
- It identified SPY in a medium-term uptrend, according to a volatility-based trading band system that I developed. My trend system filters out the signal from the noise to show us which direction (bull or bear) is likely to prevail in the coming months.
- Within this medium-term trend, SPY is overbought on a short-term basis (again, according to my own system, but in a condensed timeframe). SPY is due for a breather or modest pullback, which makes it an ideal candidate for writing covered calls.
By writing calls on current positions we own as they pull back, we are generating meaningful income that improves our total returns and buffers our downside. We need not sell SPY and “hope” that we know when to reenter the position. We can kick back and write calls, enjoying YieldBoosts up to 35%!
Let’s flip from SPY to technology stocks and the Nasdaq. We’ve discussed covered call funds such as Nuveen Nasdaq 100 Dynamic Overwrite Fund (QQQX) and Global X NASDAQ 100 Covered Call ETF (QYLD), which offer yields up to 11.9% by employing the strategy I just described on the NASDAQ index itself.
With OptionSignals, we have a DIY route to mimic these funds! We simply plug an Invesco QQQ Trust Series (QQQ) position into OptionSignals and we’ll again receive up to three potential call-writing strategies. One short-term call option expires August 8, 2025, and offers a nearly 1% “YieldBoost” annualizing to 24%:
Think of this as the “homemade” version of QQQX and QYLD! Thanks to OptionSignals, this scratch-kitchen approach can be quite lucrative.
OptionSignals can also be applied to individual stock positions. Many Contrarian Outlook readers own Arbor Realty (ABR), a 9.9% dividend payer that has been volatile year-to-date. After bottoming sharply in early May, ABR has rallied nonstop for nearly three months. It is due for a well-deserved breather.
If you’re long ABR, do you want to sell here and hope you can get back in at a better price? Likely not. A 9.9% dividend is generous compensation, even if the stock drifts sideways for a few months.
A better bet? Write covered calls on ABR! Hence the current sign from OptionSignals:
ABR trades around $12 as I write, and there are call options selling between $0.17 and $0.20 that expire this Friday with a $12.50 strike. This is more than half of Arbor’s quarterly dividend, redeemable in just a few days!
When we sell these options, we receive a 1.4% YieldBoost, which annualizes to 64%. And remember, if ABR does rally above its strike price before our option expires, we get to keep a 4.7% total return:
What if you really don’t want your Arbor shares to be called away? Then let’s look at the medium-term idea from OptionSignals, which has a higher strike price of $14.00. With September expiration quite near, it would be a tall task for ABR to rally so much so quickly.
Our compensation for writing this option is a 2.1% YieldBoost, which annualizes to 13.3%. When we add in Arbor’s 9.9% organic dividend, we would lock in a 23.2% return. Pretty sweet.
The challenge when writing calls and selling puts is always the timing. The temptation—and the top mistake new option writers make—is constantly selling options with no regard for price action probabilities.
We savvy contrarians write calls when shares are short-term toppy. This maximizes our income and helps cushion against downside.
Likewise, we sell puts when shares are bottomy. We are telling the market that if this stock gets any cheaper, we’ll take it at a discount—and in the meantime, we’ll pocket the put premium for income (thank you very much!).
This is the setup we have in Analog Devices (ADI) as I write. The medium-term trend still looks good, and shares have sold off a bit recently, making this an ideal time to consider put contracts. OptionSignals gives us three suggestions. We can run with one of these or use OptionSignals to create our own ADI trade:
Call writing and put selling are quite nuanced. That’s why I put together a short tutorial video explaining how I approach the options market for income generation, including how and when trends factor in:
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