My colleague Phil Lamanna and I call them â€ś10% Tradesâ€ť â€” and we truly believe theyâ€™re one of the best ways to safely doubleâ€¦ tripleâ€¦ or even quadruple your annualized yield on some of the worldâ€™s best companies.
Put simply, a â€ś10% Tradeâ€ť 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 likeÂ Microsoft (MSFT),Â Coca-Cola (KO), McDonaldâ€™s (MCD), Apple (AAPL), Wal-Mart (WMT), Target (TGT), General Electric (GE), Wells Fargo (WFC)Â and more.
You may have never considered a technique like this beforeâ€¦ but if youâ€™re looking to maximize your yield, and to do it safely, then you should seriously consider making a â€ś10% Tradeâ€ť today.
Thatâ€™s because Phil and I have run the numbers over and over again â€” and our overwhelming conclusion is that if executed properly, a â€ś10% Tradeâ€ť could be the single best way to safely boost your investment income.
Or, put another way, a â€ś10% Tradeâ€ť canÂ accelerateÂ 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 â€ś10% Trade.â€ť
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 incomeÂ 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 boughtÂ 100Â shares of Starbucks (SBUX)Â atÂ $79.92Â per share and simultaneously “sold to open” oneÂ February 20,Â $80 covered callÂ forÂ $2.46Â per share.
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 SBUX stays under $80 by February 20
If SBUX stays under $80 by February 20, Iâ€™ll get to keep my 100 shares.
In the process Iâ€™ll also have received $246.00 in covered call income ($2.46 x 100 shares)… and likelyÂ $32.00 in dividend income ($0.32 X 100 shares).
The covered call income, which is known as â€śpremiumâ€ť 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 Iâ€™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 Iâ€™m looking at a 3.3% yield in 46 daysâ€¦ whichÂ works out to a 26.0% annualized yield.
Scenario #2:Â SBUXÂ climbs over $80 by February 20
If SBUX climbs over $80 by February 20 my 100 shares will get sold (â€ścalled awayâ€ť) 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 Â projected dividend income ($0.32 x 100 shares).
In this scenario, after commissions Iâ€™ll be looking at a $249.28 profit.
From a percentage standpoint, this â€ś10% Tradeâ€ť would deliver an instantÂ 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, Iâ€™m looking at aÂ 3.1% total return in 46 days. That works out to a 24.8% annualized yield from SBUX.
Bottom Line:Â Either way this â€ś10% Tradeâ€ť works out offers me the opportunity to generate a 10%-plus annualized yield fromÂ Starbucks (SBUX).Â If I get to keep my shares, compound my income, and â€śrinse and repeatâ€ť this process to continue lowering my cost basis, great. Or, if Iâ€™m forced to sell SBUX for a 24.8% annualized profit, no problem.
This is why Iâ€™m such a fan of â€ś10% Tradesâ€ť… and why I think anyone looking to safely boost their income in today’s volatile market should be taking advantage of them.
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