What To Do In 2022?

On the face of it 2022 looks to be as challenging as 2021 and we have some added issues to contend with. Inflation and interest rate increases are going to be major factors during what will probably be another difficult year.

So should we do what we normally do and wait for the top analysts’ stock picks for the year ahead? Should we put our faith in those who probably know better? Why not, as equities have generally provided a better return than traditional savings accounts. But will equities provide a real return in 2022 with inflation running north of 4%? Are you comfortable with holding equities and waiting for your next dividend to arrive? Is there an alternative, especially if you think the markets might not react well to rising inflation and rising interest rates?

Can an equity and equity option overlay be a better way forward? If you think the markets are in for a tough year then selling covered calls may be the compromise you are looking for.

Let’s take the example of BP Plc. Today you can buy the shares for 356p and sell a Dec 2022 expiry 360 call option for 31p. If the shares are above 360 at expiry you will sell your shares at the strike price of 360p, making a 4p gain plus keeping the 31p premium so a total gain of 35p or 9.8%. You would also receive any dividends paid during the year, which if like 2021 could be another 4% or so.