A “10% Trade” offers you the opportunity to generate safe, double-digit annualized income from some of the best companies in the world.
I’m talking about capturing 10%-plus annualized yields from companies like Pepsi (PEP), Coca-Cola (KO), Wal-Mart (WMT), Microsoft (MSFT), Cisco (CSCO), General Electric (GE), McDonald’s (MCD), Target (TGT), IBM (IBM) and more.
In short, a “10% Trade” is a conservative income-oriented trade that involves selling either a covered call or a cash-secured put on a reasonably-priced, high-quality dividend growth stock.
These trades typically last just six to 10 weeks — and not only are they a relatively safe way to potentially double… triple… or even quadruple your annualized yield, but they can be a great way to buy an already cheap stock for even cheaper.
Consider the “10% Trade” I made with Apple (AAPL) yesterday…
At the time I made my trade, Apple was selling for $91.04 per share and the August 1, $86.00 puts were going for $1.14 per share.
My “10% Trade” involved selling two of these puts… and there are only two possible ways this trade will work out.
On one hand, I’d get to generate an 11.8% annualized yield from Apple without even owning the stock.
That’s almost six times the stock’s “regular” dividend yield of 2.1%.
On the other hand, I’d get paid $228.00 to buy Apple — an already dirt-cheap stock — for even cheaper than what it was selling for yesterday.
That said, I’ll be happy however this trade works out.
Let’s take a closer look at each scenario…
Scenario 1: AAPL falls below $86.00 by August 1
If AAPL falls below $86.00 by August, I’ll be obligated to buy 200 shares at $86.00 per share.
This money was deposited into my account immediately.
Taking this income into consideration – and subtracting out the commissions – my cost-basis will drop to $85.02 per share.
That’s a 6.6% discount to the $91.04 share price that AAPL was selling for at the time I made this trade.
Considering how the stock already looks dirt-cheap at current levels, the opportunity to pick up shares at an additional discount is particularly appealing to me.
On top of all of this, and if history is any guide, then I’ll also most likely be owning shares before Apple’s next ex-dividend date. That would set me up to potentially collect another $94.00 in cash income ($0.47 dividend per share X 200 shares)… bringing my cost-basis down to just $84.55.
Scenario 2: AAPL stays above $86.00 by August 1
If AAPL stays above $86.00 by August 1, the contract expires worthless and I get to keep the $228.00 in income (before commissions).
After commissions, this works out to a 1.3% return on what my purchase obligation would have been ($1.14 / $86.00) in 39 days.
If I can repeat these results over the period of a year I could generate an 11.8% yield from AAPL without even buying shares.
As long as the market continues to offer safe, income-generating opportunities like this one, I’ll be more than happy to take them.
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 double… triple… or even quadruple 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.[hana-code-insert name=’investorplace-article’ /]