While I already own Apple (AAPL) in my dividend growth portfolio â€” and plan on holding it for the long-haul â€” Iâ€™m always open to potential â€ś10% Tradeâ€ť opportunities with the stock that could boost my income.
If youâ€™re just joining us, a â€ś10% Tradeâ€ť isÂ a conservative income-oriented trade that involves selling either a covered call or a cash-secured put on a high-quality dividend growth stock trading at a reasonable price.
While these trades typically last six to 10 weeks, this time frame isnâ€™t set in stone.
Sometimes they last longerâ€¦ sometimes shorter.
Regardless of how long they last, at the end of the day, a â€ś10% Tradeâ€ť is designed to generate safe, 10%-plus annualized yields.
With this in mind, I made another â€ś10% Tradeâ€ť with Apple on Friday.
At the end of the day, this “10% Trade” should generate a 46.1% to 52.2% annualized yield, which is significantly more income than what Iâ€™m collecting from my â€śbuy and holdâ€ť shares.
The income Iâ€™m collecting also helps reduce my cost basis, lowering my overall risk.
Hereâ€™s how it worksâ€¦
Opportunity to Capture a 46.1% to 52.2% Annualized Yield from AAPL
On Friday I bought 100Â shares of AAPLÂ forÂ $108.82Â per share and simultaneously “sold to open” oneÂ January 17,Â $109.29 covered callÂ forÂ $2.24Â per share.
After accounting for commissions, my cost basis was reduced to $106.76, which is like buying Apple at a 1.9% discount to the price it was trading for when I placed the trade on Friday.
There are two likely ways this “10% Trade”Â will work out — and they both spell at least double-digit annualized yields on my purchase priceâ€¦
Scenario #1:Â AAPL stays under $109.29 by January 17
If AAPL stays under $109.29 by January 17 Iâ€™ll get to keep my 100 shares.
In the process Iâ€™ll also have received $224.00 in covered call income ($2.24 x 100 shares).
The covered call income, which is known as â€śpremiumâ€ť in the options world, was collected instantly on Friday.
At the end of the day, if “Scenario 1″ plays out Iâ€™ll be looking at $206.47 in profit after commissions.
On a percentage basis, I received an instant 2.1% yield for selling the covered call ($2.24 / $108.82).
When I subtract out the commissions Iâ€™m looking at a 1.9% yield in 15 daysâ€¦ whichÂ works out to a 46.2% annualized yield.
Scenario #2:Â AAPLÂ climbs over $109.29 by January 17
If AAPL climbs over $109.29 by January 17 my 100 shares will get sold (â€ścalled awayâ€ť) at $109.29 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $224 in covered call income ($2.24 x 100 shares). But I’ll also generate $47.00 in capital gains ($0.47 X 100).
In this scenario, after commissions Iâ€™ll be looking at a $233.48 profit.
From a percentage standpoint, this â€ś10% Tradeâ€ť will deliver an instantÂ 2.1% yield for selling the covered call ($2.24 / $108.82)Â and a 0.4% return from capital gains ($0.47 / $108.82).
After subtracting out the commissions, Iâ€™m looking at aÂ 2.1% total return in 15 days.
If I can repeat these results over the period of a year, I could generate a 52.2% yield from AAPL.
This setup with AAPL is just one more example of why Iâ€™m such a big fan of â€ś10% Trades.â€ť
As Iâ€™ve mentioned before, as long as the market continues to offer safe, income-generating opportunities like this one, Iâ€™ll be more than happy to take them.
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