I Just Made This “10% Trade” with Medtronic (MDT)

September 25, 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 most “buy and hold” investors will have to wait an entire year to collect a 2.0% dividend yield from Dividend Champion Medtronic (MDT), a carefully selected “10% Trade” can deliver the equivalent amount of income in DAY ONE of the trade.

I realize this sounds crazy, but I’ll show you how it all works in a moment.

Before we get to that though, keep in mind that 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 are a relatively safe way to potentially double… triple… or even quadruple (or more) your annualized yield.

You may have never considered a technique like this before… but if you’re looking to boost your yield, and to do it safely, then you should seriously consider making a “10% Trade” today.

In fact, I’m so convinced by these yield-boosting opportunities, that not only have I been personally making “10% Trades” with my own money… but I’ve been encouraging my close friends and family to consider doing the same with theirs.

That’s because my research staff and I have run the numbers over and over again — and our overwhelming conclusion is that if executed properly, a “10% Trade” could be the single best way to safely boost your investment income.

Not convinced? Consider these real-life “10% Trades” I’ve closed out in recent months…

Put another way, a “10% Trade” can accelerate your income.

Income that would typically take 12 months to generate (if all you did was collect the stock’s dividend) can be generated in a fraction of the time with a “10% Trade.”

In fact, the “10% Trade” I made with Medtronic yesterday delivered a 2.0% yield instantly. That’s the equivalent of a year’s worth of dividends, yet I collected this income in DAY ONE of the trade.

I don’t say any of this to brag, but to rather show you the awesome income-generating power of a carefully selected “10% Trade.”

Besides, the idea to “trade Medtronic for income” isn’t even mine. It belongs to DailyWealth Trader’s Amber Lee Mason. (In case you missed it earlier this week, you can review her excellent piece here).

While the details of my specific trade vary a tad from the ones in Amber’s write-up, the “big picture” is the same: it’s entirely possible to generate double-digit annualized income — and to do it safely — from a high-quality dividend growth stock like Medtronic.

Here’s how…

Capturing a 15.1% to 28.5% Annualized Yield from Medtronic
Yesterday I bought 200 shares of Medtronic (MDT) for $63.58 per share and simultaneously sold two November 22, $65 covered calls for $1.29 per share.

There are only two possible ways this trade will work out — and they both spell at least double-digit annualized yields on my purchase price…

Scenario #1: Medtronic stays under $65 by November 22
If Medtronic stays under $65 by November 22 I’ll get to keep my 200 shares.

"10% Trade" with Medtronic (MDT)In the process I’ll also have received $258 in covered call income ($1.29 x 200 shares) and $61 in quarterly dividends ($0.31 x 200 shares).

The covered call income — known as a “premium” in options speak — was collected instantly yesterday. It was deposited in my brokerage account.

I’ll collect the dividend income on October 24. I’m eligible to collect the dividend because I purchased shares at least one business day before the company’s October 1 ex-dividend date.

At the end of the day, if “Scenario 1″ plays out I’ll be looking at $309.55 in profit after commissions.

On a percentage basis, I received an instant 2.0% yield for selling the covered calls ($1.29 / $63.58) and I’ll get a 0.5% yield from the upcoming dividend ($0.31 / $63.58).

When I subtract out the commissions I’m looking at a 2.4% yield in 58 days… which works out to a 15.1% annualized yield. That’s more than seven times Medtronic’s “regular” annual dividend yield of 2.0%.

Scenario #2: Medtronic climbs over $65 by November 22
If Medtronic climbs over $65 by November 22 my 200 shares will get sold (“called away”) at $65 per share.

In this scenario, not only will I get to keep the $258 in covered call income ($1.29 x 200 shares) and the $61 in quarterly dividends ($0.31 x 200 shares)… but I’ll also generate $284 in capital gains ($1.42 x 200 shares) in the process.

In this scenario, after commissions I’ll be looking at a $584.46 profit.

From a percentage standpoint, this “10% Trade” will deliver an instant 2.0% yield for selling the covered calls ($1.29 / $63.58)… a 0.5% yield from the upcoming dividend ($0.31 / $63.58)… and a 2.2% return from capital gains ($1.42 / $63.58).

After subtracting out the commissions, I’m looking at a 4.6% total return in 59 days (two months).

That works out to a 28.5% annualized yield from Medtronic.

Bottom Line: Either way this “10% Trade” works out offers me the opportunity to generate a 10%-plus annualized yield from a Dividend Champion like Medtronic (MDT). If I get to keep my shares, compound my income, and “rinse and repeat” this process to continue lowering my cost basis, great. Or, if I’m forced to sell Medtronic for a 28.5% annualized profit, no problem. This is just one more example of why I’m such a fan of “10% Trades.”

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 boost 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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