In short, it’s a prime example of a company that offers a mix of both growth AND income.
Now, thanks to its recent sell-off, investors and traders alike could be looking at a compelling buying opportunity today.
I’m personally taking advantage of the situation by accumulating shares of the stock for my long-term dividend growth portfolio.
I’m also making a “10% Trade” that’s poised to deliver a 10%-plus annualized yield.
Opportunity to Capture a 21.0% to 29.7% Annualized Yield from Disney
On Friday I bought 100 shares of DIS for $108.82 per share and simultaneously “sold to open” one September 18, $110.00 covered call for $2.71 per share.
With this in mind, there are likely two ways this trade will work out — and they both spell at least double-digit annualized yields on my purchase price…
Scenario #1: Disney stays under $110.00 by September 18
If Disney stays under $110 by September 18, I’ll get to keep my 100 shares.
In the process I’ll also have received $271.00 in covered call income ($2.71 x 100 shares).
The covered call income — known as a “premium” in the options world — was collected instantly on Friday. It was deposited in the account where I made the trade, which is my 401k retirement account.
At the end of the day, if “Scenario 1″ plays out I’ll be looking at $262.30 in profit after commissions and fees.
On a percentage basis, I received an instant 2.5% yield for selling the covered call ($2.71 / $108.82).
When I subtract out the commissions and fees I’m looking at a 2.4% yield in 42 days, which works out to a 21.0% annualized yield.
If Disney climbs over $110 by September 18 my 100 shares will get sold (“called away”) at $110 per share.
Like “Scenario 1″, I get to keep the $271 in covered call income ($2.71 x 100 shares)… but I’ll also generate $118 in capital gains ($1.18 X 100).
In this scenario, after commissions and fees I’ll be looking at a $372.11 profit.
From a percentage standpoint, this “10% Trade” will deliver and instant 2.5% yield for selling the covered call ($2.71 / $108.82) and a 1.1% return from capital gains ($1.18 / $108.82).
After subtracting out the commissions and fees, I’m looking at a 3.4% total return in 42 days.
That works out to a 29.7% annualized yield from Disney. Not bad, considering the stock’s “regular” yield is just 1.1%.