Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



How You Can Get a Pay Raise Like Jamie Dimon

"When Alexander saw the breadth of his domain, he wept, because there were no more worlds to conquer."

Photo Credit:

Whether it was said by Pathos or Hans Gruber, I like to wonder if Jamie Dimon of JPMorgan Chase  (NYSE: JPM  ) has similar thoughts racing through his head as he sits in his corner office at 270 Park after the close sipping a cool martini. Having survived Congressional inquiries, a whale of a loss in London, the meltdown and subsequent settlement over their MBS business, Madoff, and others, Dimon was recently rewarded with a 74% pay raise, while maintaining the two loftiest positions at the country's largest commercial bank.

After this vote of confidence, he announced the slashing of 8,000 jobs, mostly in the mortgage area, though he said he would add a few jobs in compliance. It appears to some that ethics and controls had taken a vacation at the bank these last few years. Dimon says the layoffs are part of the normal process, something about "trimming the sails being a part of life."

Though earnings at the bank took a dip due to the aforementioned hurdles, and Dimon admitted more obstacles are imminent, the bank remains a mainstay in almost every value-based portfolio, with the current CFO saying the company is 20% undervalued at its current trading price.

So even with the impending problems creating numerous hits to future earnings, Dimon and his bank should emerge relatively unscathed with little severe risk to the downside. This confluence of factors makes the stock a perfect candidate for writing calls against the stock ("covered call writing") in your portfolio to produce extra income with minimal risk.

Writing covered calls is about as easy as Dimon handing out pink slips. As a primer: You own the stock. (I'm not advocating you rush out and buy the common if you don't already own JPMorgan just so you can play our little game). You sell one call for each 100 shares you own, and in doing so you are selling the rights for someone out there to buy a hundred shares of the stock (for each call they buy) at a specific price (the exercise or strike price) for a specific period of time (the exercise or expiration date).

You pocket the premium for selling the call immediately.

If the price does not exceed the exercise price by the expiration date, you keep the premium and your stock. If the price on expiration day is above the strike price, there's a good chance you will have to sell your shares at the strike price, but you still keep the premium you received. Any dividends paid before the expiration date are yours to keep. If the stock price falls and you are afraid of losing any gains you may have realized, you can always sell your stock, but you should buy back the option you sold, otherwise you are holding a naked position. (Not a position you want unless you're built like Charlize Theron or Brad Pitt vacationing at Leucate Plage.)

Regardless of what you think of him, Dimon will probably weather the next storm at JPMorgan, just as he has survived crisis after crisis which surely would have brought a mere mortal CEO to his knees. There are a number of technical factors besides that make the perfect stock for call writing: the volatility is moderate, the dividend is consistent, the liquidity of the options is immense. But we'll keep these in our back pocket for now as well. It's enough to know that the premiums received can increase your cash flow from holding the stock.

Though only sports stars are supposed to make the money Dimon is reeling in, and I'm certain President Obama saw the pay raise as another blow to his "where's the equality in this capitalism thing", Dimon can sit back and enjoy the view, while you have your own martini with a smile, counting the extra cash from your call writing.

More income producing investments
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it’s true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor’s portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2868298, ~/Articles/ArticleHandler.aspx, 8/30/2015 4:15:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Howard Shindell

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
JPM $64.13 Down -0.35 -0.54%
JPMorgan Chase & C… CAPS Rating: ****