How to Create Two Streams of Income From One Stock

Creating extra income streams to add cash flow to your current investment plan is not as complicated as it may sound. There are many ways to do this. You could buy a bond. You could invest in a CD or you could invest in stocks. You can also use stocks to create additional income streams to your portfolio that allow your account to earn additional income while waiting for your stocks to appreciate. You can do this with dividends and call options.

• 1

  Open an online brokerage account and get approved to trade options. This is a simple process that can be done online. The application has a section where you can apply for options trading. Some brokerages will approve the account instantly.

• 2

  Fund the account with enough money to buy at least 100 shares of stock. The amount will vary, depending on the stock you decide to buy, but keep in mind that 100 shares of a $10 stock will cost about $1,000 and 100 shares of a $50 stock will cost about $5,000.

• 3

  Search for stocks that pay a dividend. Yahoo has a screener that allows you to screen for dividend-yielding stocks, or check with your broker. Screen for stocks paying dividends at least quarterly.

• 4

  Make a list of your top stocks. Review the history of each to make sure they are paying consistently. It is not unreasonable to find a stock that is paying around 3 to 4 percent.

• 5

  Review each stock to find if there are options available on the stock. This can also be done using Yahoo's stock quotes. Open the quote screen and select "Options" on the menu. You want to find a stock that has open interest in the thousands. This tells you how many option contracts are open for the option you are reviewing.

• 6

  Select and purchase at least 100 shares of your stock so you can sell an option on the stock and receive your dividends.

• 7

  Collect your dividends. This is the first income stream from your stock. If you selected a stock that pays a 4 percent dividend, you will make about 1 percent each quarter.

• 8

  Sell a covered call on your stock. When you sell a covered call, you are writing a contract that allows someone to buy the stock from you for a certain period at a specified price. Each quarter you can select a price and collect a premium for agreeing to sell the stock at that price.

• 9

  Repeat the process. Each quarter you will be collecting a dividend of around 1 percent. You will also be able to collect an option premium of 1 to 2 percent per quarter, creating a second income stream from the stock for as long as you own it.