I Just Made This “10% Trade” with Apple (AAPL)

August 11, 2014
By
Please keep in mind that these “10% Trade” alerts are for information purposes only. We’re not registered financial advisors and these aren’t specific trade recommendations for you as an individual. Each of our readers have different financial situations, risk tolerance, goals, time frames, etc. The ideas we publish are simply ideas that we feel fit our specific needs and that we’re personally making in our own portfolios. You should also be aware that some of the trade details (specifically stock prices and options premiums) are certain to change from the time we make our trade to the time you’re alerted about it. So please don’t attempt to make this “10% Trade” yourself without first doing your own due diligence and research.

While Apple’s (AAPL) current yield of 2.1% isn’t spectacular, its latest dividend increase of 24% means that the stock is now offering some of the fastest dividend growth on the market.

According to StreetAuthority’s Nathan Slaughter, it’s precisely this kind of stock — and other dividend growers like it — “that will turn into the high yielders of tomorrow.”

That’s good news for investors who have a long enough time horizon.

But what if you can’t wait until “tomorrow”? What if you need safe, high-yields today?

This is where I think a smart “10% Trade” can come into play.

If you’re just joining us, a “10% Trade” is a conservative income-oriented trade that involves selling either a covered call or a cash-secured put on a reasonably-priced, high-quality dividend growth stock.

These trades typically last just six to 10 weeks — and not only are they a relatively safe way to potentially double… triple… or even quadruple your annualized yield, but they can be a great way to buy an already cheap stock for even cheaper.

"10% Trade" with AppleConsider the “10% Trade” I made with Apple (AAPL) on Friday…

At the time I made my trade, Apple was selling for $93.83 per share and the September 20, $87.50 puts were going for $1.15 per share.

My “10% Trade” involved selling one of these puts… and there are only two possible ways this trade will work out.

On one hand, I’d get to generate a 10.4% annualized yield from Apple without even owning the stock.

That’s almost five times the stock’s “regular” dividend yield of 2.1%.

On the other hand, I’d get paid $115.00 to buy Apple – an already cheap stock – for even cheaper than what it was selling for on Friday

That said, I’ll be happy however this trade works out.

Let’s take a closer look at each scenario…

Scenario 1: AAPL falls below $87.50 by September 20
If AAPL falls below $87.50 by September 20, I’ll be obligated to buy 100 shares at $87.50 per share.

In exchange for my agreement, I was paid an instant $115.00 (100 shares X $1.15 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 drop to $86.52 per share.

That’s a 7.8% discount to the $93.83 share price that AAPL was selling for at the time I made this trade.

Considering how the stock already looks cheap at current levels, the opportunity to pick up shares at an additional 7.8% discount is particularly appealing to me.

Scenario 2: AAPL stays above $87.50 by September 20
If AAPL stays above $87.50 by September 20, the contract expires worthless and I get to keep the $115.00 in income (before commissions).

After commissions, this works out to a 1.2% return on what my purchase obligation would have been ($1.15 / $87.50) in 43 days.

If I can repeat these results over the period of a year I could generate a 10.4% yield from AAPL without even buying shares.

As Wyatt Research’s Andy Crowder pointed out back in June, “[Selling puts on Apple] is a superb way to collect income on arguably one of the best stocks the market has to offer.”

I agree.

Greg Patrick
TradesOfTheDay.com

P.S. The reason I’ve gone public with many of my real-life, real-money “10% Trades” is so you can see for yourself how entirely possible it is to double… triple… or even quadruple your annualized yield on high-quality dividend growth stocks. Just keep in mind that these trades aren’t intended to be specific recommendations for you as an individual. Everyone has different financial situations, risk tolerance, goals, time frames, etc.

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