With shares up roughly 8% over the past 10 days — and more importantly, trading a little under my purchase price of $108.82 per share — it seemed like a good time to make a new “10% Trade” with Disney (DIS) yesterday.
My trade involved selling one December 18, $110 covered call for $2.42 per share.
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 by December 18
If Disney stays under $110 by December 18 I’ll get to keep my 100 shares.
In the process, I’ll also have received $242.00 in covered call income ($2.42 x 100 shares).
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 $233.25 in profit after commissions.
On a percentage basis, I received an instant 2.2% yield for selling the covered call ($2.42 / $108.82).
When I subtract out the commissions I’m looking at a 2.1% yield in 67 days… which works out to an 11.7% annualized yield.
Scenario #2: Disney climbs over $110 by December 18
If Disney climbs over $110 by December 18 my 100 shares will get sold (“called away”) at $110 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $242.00 in covered call income ($2.42 x 100 shares). I’ll also generate $118.00 in capital gains ($1.18 X 100).
In this scenario, after commissions I’ll be looking at a $343.06 profit.
From a percentage standpoint, this “10% Trade” will deliver an instant 2.2% yield for selling the covered call ($2.42 / $108.82) and a 1.1% return from capital gains ($1.18 / $108.82).
After subtracting out the commissions, I’m looking at a 3.2% total return in 67 days.
That works out to an 17.2% annualized yield from Disney.
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.