With shares trading around my purchase price of $108.82, yesterday seemed like a good time to make another high-yield trade with Disney (DIS).
My trade involved selling one June 15, 2018 $110 call for $5.46 per share.
I sold this call on the 100 shares I purchased for $108.82 per share during a high-yield trade I made way back in August 2015.
I then sold another call option on those same shares on October 12, 2015 and generated an additional $242 in income. That call option expired worthless on December 18, 2015.
I’ve been holding the same 100 shares ever since my original purchase in August 2015, so I’ve also collected a growing dividend. Added up, my dividends have totaled $298.
In addition, I’ll collect another $84 in dividends on January 11, 2018.
So in total, if we include the call income from yesterday’s high-yield trade and the upcoming dividend payout in a couple weeks, we’re looking at $14.41 per share in combined call income and dividend income (or $1,441 in total income).
On a purchase price of $108.82 per share, that’s 13.2% in income.
Now, that number is peanuts compared to the market’s return over the same period. But keep in mind, that’s 13.2% in income from a stock that 1) yields less than 2% and that 2) has essentially gone nowhere since I purchased it: I bought Disney shares at $108.82 back in August 2015… and today they’re hovering around that same level.
With this in mind, now’s a great time to sell another round of calls on those 100 shares.
There are likely two ways my new high-yield trade will work out — and they both spell at least double-digit annualized yields on my purchase price…
Scenario #1: DIS stays under $110 by June 15, 2018
If DIS stays under $110 by June 15 I’ll get to keep my 100 shares.
In the process, I’ll also have received $546 in call income ($5.46 x 100 shares).
The call income — known as a “premium” in the options world — was collected instantly yesterday.
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 $540.40 in profit after commissions.
On a percentage basis, I received an instant 5.0% yield for selling the call ($5.46 / $108.82).
When I subtract out the commissions I’m looking at a 5.0% yield in 171 days… which works out to a 10.6% annualized yield.
Scenario #2: DIS climbs over $110 by June 15, 2018
If DIS climbs over $110 by June 15, my 100 shares will get sold (“called away”) at $110 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $546 in call income ($5.46 x 100 shares). I’ll also generate $118 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 $653.45 profit.
From a percentage standpoint, this high-yield trade will deliver an instant 5.0% yield for selling the call ($5.46 / $108.82) and a 1.1% gain ($1.18 / $108.82).
After subtracting out the commissions, I’m looking at a 12.8% total return in 171 days.
That works out to a 12.8% annualized yield from DIS.
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.