Ever since 100 of my shares of Wal-Mart (WMT) got “called away” last month, I’ve been waiting for another “10% Trade” opportunity to come along.
In particular, I’ve been waiting for an opportunity to both:
1) buy back the stock at a reasonable price, and
2) pull in a 10%-plus annualized yield in the process
Yesterday, that opportunity came.
The neat thing about this particular “10% Trade” is that I’m getting paid for simply agreeing to buy WMT for the same exact price that I just sold it for.
At the time I made my trade yesterday, WMT was selling for $75.46 per share and the June 21, $75.00 puts were going for $0.63 per share.
My “10% Trade” involved selling two of these puts… and there are only two possible ways this trade will work out.
On one hand, I’d get to generate an 11.3% annualized yield from WMT without even owning the stock. On the other hand, I’d get paid to buy WMT at $75.00 per share — the same price I just sold it for last month.
That said, I’ll be happy however this trade works out.
Let’s take a closer look at each scenario…
Scenario 1: WMT falls below $75.00 by June 21
If WMT falls below $75.00 by June 21, I’ll be obligated to buy 200 shares at $75.00 per share.
And I’m getting paid to buy the stock at that price.
You see, in exchange for my agreement, I collected an instant $126.00 (200 shares X $0.63 per share) before commissions.
This money was deposited into my account immediately.
Taking this income into consideration – and subtracting out the commissions – my cost-basis will actually drop to $74.47 per share.
That’s a 1.3% discount to the $75.46 share price that WMT was selling for at the time I made this trade. I realize that’s not much of a discount, but that’s not the point. The point is, in “Scenario 1” I’m getting paid instant cash for the opportunity to buy WMT at the same price that I just sold it for. I’ll take it!
Scenario 2: WMT stays above $75.00 by June 21
If WMT stays above $75.00 by June 21, the contract expires worthless and I get to keep the $126.00 in income (before commissions).
After commissions, this works out to a 0.8% return on what my purchase obligation would have been ($0.63 / $75.00) in only 25 days.
That may not sound like a big deal, but if I can repeat this trade over the period of a year I could generate an 11.3% yield from WMT without even buying shares. That’s the power of a “10% Trade.”
I’ll continue to keep you posted as I make these trades, but please keep in mind that these aren’t intended to be specific recommendations. Everyone has different financial situations, risk tolerance, goals, time frames, etc.
Instead, I’m sharing these real-life, real-money “10% Trades” as examples — so you can see for yourself how it’s entirely possible to safely double… triple… or even quadruple your yield on some of the best companies in the world.
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