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  • Writer's pictureMatt DeLong

Do stock owners get a regular income from their stocks?

Income comes in several forms:

You sell a stock for a gain. When you sell a stock for more than you paid for it, your “unrealized gain” becomes a “realized”. If you do this often enough like I do, it can be very lucrative — assuming you know what you are doing. Depending on how long you owned the stock, your gains would be taxed at short/long term capital gains.

Some stocks can pay a “dividend” which is sort of like a rebate paid out on a quarterly basis. The dividend % is announced in advance and “dividend capturing” is a specialty in and of itself. If you have enough shares, this can be very lucrative because the dividend payment is for each share you own. In 2017, Warren Buffet made $9.7m PER DAY on just dividends in one of his portfolio companies (Coca-Cola). Warren Buffett Is Earning $6,731 in Dividend Income Per Minute This Quarter -- The Motley Fool

If your stock trades “high volume” on a daily basis, it’s probably has options, so you can also sell option premium (covered calls). If your stock that you own in at $90, you can sell a $95 or $100 covered call which gives someone the “option” to buy it from you at the $95 or $100 strike price. You receive $1 or 2 in premium per share and if the price is above your strike, they can “call your shares” away from you at the $100 price, leaving you with a $10 profit on the shares + plus another $1–2 in premium (essentially selling your $90 stock for $101 or $102). It’s very safe to do this, but you are limiting your upside.

There is also credit spreads where you buy/sell a combination of calls/puts to receive a “credit”. Their risks vary depending on the exact strategy you are using.

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