My colleague Phil Lamanna and I call them “10% Trades” — and we truly believe they’re one of the best ways to safely double… triple… or even quadruple your annualized yield on some of the world’s best companies.
Put simply, a “10% Trade” is a conservative, income-oriented trade that typically lasts just six to 10 weeks and that, if repeated over the course of a year, can generate at least 10% yields from companies like Microsoft (MSFT), Coca-Cola (KO), McDonald’s (MCD), Apple (AAPL), Wal-Mart (WMT), Target (TGT), General Electric (GE), Wells Fargo (WFC) and more.
You may have never considered a technique like this before… but if you’re looking to maximize your yield, and to do it safely, then you should seriously consider making a “10% Trade” today.
That’s because Phil 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.
Or, put another way, a “10% Trade” can accelerate the income you generate from stocks you already own. Income that would typically take a year or two to generate (if all you did was collect the dividend) can be generated in a fraction of the time with a “10% Trade.”
Consider the “10% Trade” I made with Starbucks (SBUX) yesterday…
At current prices, Starbucks pays quarterly dividends that add up to a 1.5% yield in income over a period of a year. Compare that to the “10% Trade” I made yesterday: it generated 3.1% in income in just one single day.
Do you see what I mean when I say that a “10% Trade” can accelerate your income? Anyone relying on dividend income alone would need over 24 months to collect the same amount of income that a select “10% Trade” can generate in a single day.
If you’ve never sold options before — which is what we’re doing when we make a “10% Trade” — I realize this may sound confusing. Below I’ll walk you through the details of my specific trade to help give you a better idea of how it all works.
Opportunity to Capture a 24.8% to 26.0% Annualized Yield from SBUX
Yesterday I bought 100 shares of Starbucks (SBUX) at $79.92 per share and simultaneously “sold to open” one February 20, $80 covered call for $2.46 per share.
There are two likely ways this “10% Trade” will work out — and they both spell at least double-digit annualized yields on my purchase price…
Scenario #1: SBUX stays under $80 by February 20
If SBUX stays under $80 by February 20, I’ll get to keep my 100 shares.
In the process I’ll also have received $246.00 in covered call income ($2.46 x 100 shares)… and likely $32.00 in dividend income ($0.32 X 100 shares).
The covered call income, which is known as “premium” in the options world, was collected instantly yesterday. Starbucks has yet to declare its next quarterly dividend, but if history is any guide, it should go ex-dividend in early February.
At the end of the day, if “Scenario 1” plays out I’ll be looking at $261.27 in profit after commissions.
On a percentage basis, I received an instant 3.1% yield for selling the covered call ($2.46 / $79.92) and I’ll likely receive a 0.4% yield from dividends ($0.32 / $79.92).
When I subtract out the commissions I’m looking at a 3.3% yield in 46 days… which works out to a 26.0% annualized yield.
Scenario #2: SBUX climbs over $80 by February 20
If SBUX climbs over $80 by February 20 my 100 shares will get sold (“called away”) at $80 per share.
In “Scenario 2” — like “Scenario 1” — I get to keep the $246 in covered call income ($2.46 x 100 shares). I’ll also generate $8.00 in capital gains (($80-$79.92) x 100). Finally, depending on when SBUX goes ex-dividend, and as long as I still own shares at least one business day before that date, I’ll likely collect $32.00 in projected dividend income ($0.32 x 100 shares).
In this scenario, after commissions I’ll be looking at a $249.28 profit.
From a percentage standpoint, this “10% Trade” would deliver an instant 3.1% yield for selling the covered call ($2.46 / $79.92)… a 0.1% return from capital gains ($0.08 / $79.92)… and a 0.4% yield from projected dividend income ($0.32 / $79.92).
After subtracting out the commissions, I’m looking at a 3.1% total return in 46 days. That works out to a 24.8% annualized yield from SBUX.
Bottom Line: Either way this “10% Trade” works out offers me the opportunity to generate a 10%-plus annualized yield from Starbucks (SBUX). 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 SBUX for a 24.8% annualized profit, no problem.
This is why I’m such a fan of “10% Trades”… and why I think anyone looking to safely boost their income in today’s volatile market should be taking advantage of them.