With shares once again trading over my purchase price of $108.82 per share — it seemed like a good time to make a new “10% Trade” with Disney (DIS).
I made the trade on Tuesday, and it involved selling one June 16, $110 covered call for $5.10 per share.
I sold this call on the 100 shares that I had purchased for $108.82 per share during a previous “10% Trade”.
Here’s a quick summary of the call income and dividend income I’ve collected so far since buying these 100 shares back on August 7, 2015:
- I collected $2.71 per share in call income on August 7, 2015
- I collected $2.42 per share in call income on October 12, 2015
- I collected $0.71 per share in dividends on January 11, 2016
- I collected $0.71 per share in dividends on July 28, 2016
- I collected $0.78 per share in dividends on January 11, 2017
- I collected $5.10 per share in call income on January 31, 2017
So I’ve collected $1,243 in total income so far ($12.43 per share), which is 11.4% of my original investment of $10,882 (100 shares x $108.82 per share).
If I was simply holding the shares for their dividends alone, and not selling rounds of calls as well, I would have only generated $212 in total income so far ($2.12 per share). That’s just 2% of my original investment of $10,882.
I think this is a good example of the income-boosting power of smart “10% Trades”.
There are likely two ways this new 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 June 16
If Disney stays under $110 by June 16 I’ll get to keep my 100 shares.
In the process, I’ll also have received $510.00 in covered call income ($5.10 x 100 shares).
[hana-code-insert name=’adsense-article’ /]The covered call income — known as a “premium” in the options world — was collected instantly Tuesday.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 $501.24 in profit after commissions.
On a percentage basis, I received an instant 4.7% yield for selling the covered call ($5.10 / $108.82).
When I subtract out the commissions I’m looking at a 4.6% yield in 137 days… which works out to a 12.3% annualized yield.
Scenario #2: Disney climbs over $110 by June 16
If Disney climbs over $110 by June 16 my 100 shares will get sold (“called away”) at $110 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $510.00 in covered call income ($5.10 x 100 shares). I’ll also generate $118.00 in capital gains ($1.18 X 100) because I bought at $108.82 and will be selling at $110.
In this scenario, after commissions I’ll be looking at a $611.05 profit.
From a percentage standpoint, this “10% Trade” will deliver an instant 4.7% yield for selling the covered call ($5.10 / $108.82) and a 1.1% return from capital gains ($1.18 / $108.82).
After subtracting out the commissions, I’m looking at a 5.6% total return in 137 days.
That works out to a 15.0% annualized yield from Disney.
Greg Patrick
TradesOfTheDay.com
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.
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