With shares trading above my purchase price of $21.43, yesterday seemed like a perfect time to make a new high-yield trade with Kroger (KR).
My trade involved selling four December 15, $22 calls for $0.83 per share.
I sold these calls on the 400 shares I purchased for $21.43 per share during a previous high-yield trade.
The call options I sold on that trade expired worthless on October 20, so I’m simply selling another round of calls on those same shares to generate additional income.
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: KR stays under $22 by December 15
If KR stays under $22 by December 15 I’ll get to keep my 400 shares.
In the process, I’ll also have received $332 in call income ($0.83 x 400 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 $324.45 in profit after commissions.
On a percentage basis, I received an instant 3.9% yield for selling the calls ($0.83 / $21.43).
When I subtract out the commissions I’m looking at a 3.8% yield in 39 days… which works out to a 35.4% annualized yield.
Scenario #2: KR climbs over $22 by December 15
If KR climbs over $22 by December 15, my 400 shares will get sold (“called away”) at $22 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $332 in call income ($0.83 x 400 shares). I’ll also generate a $228 in capital gains ($0.57 X 400) because I bought at $21.43 and will be selling at $22.
In this scenario, after commissions I’ll be looking at a $547.50 profit.
From a percentage standpoint, this high-yield trade will deliver an instant 3.9% yield for selling the calls ($0.83 / $21.43) and a 2.7% gain ($0.57 / $21.43).
After subtracting out the commissions, I’m looking at a 6.4% total return in 39 days.
That works out to a 59.8% annualized yield from KR.
P.S. The reason I’ve gone public with many of my real-life, real-money “High-Yield 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.