In short, the company is a cash-gushing powerhouse with thick, consistent profit margins and a huge competitive moat around its business… it pays an above average yield (and a dividend that’s steadily growing)… and it continually buys back its own stock.
At current prices, this “Dividend Contender” pays a 2.8% forward dividend yield for anyone who buys today.
That’s not bad, but what if I told you that it was possible to collect a 10.7% annualized yield from MSFT without even owning the stock?
I realize that may sound far-fetched, but that’s exactly the opportunity I was looking at yesterday when I made my latest “10% Trade” with MSFT.
At the time I made my trade, MSFT was selling for $39.94 per share and the June 21, $38.00 puts were going for $0.70 per share.
My “10% Trade” involved selling three of these puts… and there are only two possible ways this trade will work out.
On one hand, I’d get to generate a 10.7% annualized yield from MSFT without even owning the stock. On the other hand, I’d get to buy MSFT at a 6.4% discount to what it was trading for at the time I executed the trade.
Since safe, double-digit income is a no-brainer — and since I’d be happy getting paid to buy MSFT at the same price I just sold it for (which is $38.00 per share) — I’ll be happy however this trade works out.
Let’s take a closer look at each scenario…
Scenario 1: MSFT falls below $38.00 by June 21
If MSFT falls below $38.00 by June 21, I’ll be obligated to buy 300 shares at $38.00 per share. That’s cheaper than the $39.94 price the stock was trading for when I sold the puts yesterday.
This money was deposited into my account immediately.
Taking this income into consideration – and subtracting out the commissions – my cost-basis will drop to $37.40 per share.
That’s a 6.4% discount to the $39.94 share price that MSFT was selling for at the time I made this trade.
So in “Scenario 1” I get paid instant cash while I wait to buy MSFT at a discount (which also happens to be the same exact price I just sold it for). I’ll take it!
Scenario 2: MSFT stays above $38.00 by June 21
If MSFT stays above $38.00 by June 21, the contract expires worthless and I get to keep the $210.00 in income (before commissions).
After commissions, this works out to a 1.8% return on what my purchase obligation would have been ($0.70 / $39.94) in under nine weeks.
If I can repeat this trade over the period of a year I could generate a 10.7% yield from MSFT without even buying shares!
I’ll continue to keep you posted as I make these trades, but please keep in mind that these aren’t intended to be specific recommendations. Everyone has different financial situations, risk tolerance, goals, time frames, etc.
Instead, I’m sharing these real-life, real-money “10% Trades” as examples — so you can see for yourself how it’s entirely possible to safely double… triple… or even quadruple your yield on some of the best companies in the world.
P.S. To help keep track of the performance of my “10% Trades”, we’ve added a special Track Record section to the main menu bar on TradesOfTheDay.com. Check it out. As you’ll see, I just closed out four “10% Trades” last week. All four were winners and generated annualized yields of 16.6% to 43.8%. One of these trades resulted in 100 shares of MSFT getting “called away” at $38 per share for a total profit of 6.5%. Now get this: the neat thing about the “10% Trade” I just made yesterday with MSFT is that I got paid $210.00 instantly for simply agreeing to buy MSFT at the same exact price I just sold it for (which is $38 per share). This is just one more example of the safe, income-generating power of a well-timed “10% Trade”![hana-code-insert name=’stansberry-article’ /]