If history is any guide, then right now could be a good time to buy General Electric (GE).
In short, not only does this dividend grower look reasonably priced at current levels, but the stock’s technical setup looks favorable as well.
In fact, the last three times we’ve seen a setup like this over the past 18 months — where GE has emerged from touching 30 on its RSI — shares have gone on to rise 11.5%, 7.5% and 8.8%.
Now, thanks to last week’s sell-off, GE once again touched the 30 level and now appears to be bouncing.
Take a look…
You can buy shares right now at their market price, but I think a “10% Trade” at this point could be both safer AND generate more income than what you would collect in dividends alone.
To show you what I mean, consider the “10% Trade” I made on Friday…
At the time I made the trade, GE was selling for $25.31 per share and the September 20, $25 puts were going for $0.52 per share.
My “10% Trade” involved selling three of these puts… and there are only two possible ways this trade will work out.
[hana-code-insert name=’adsense-article’ /]On one hand, I’d get to generate a 14.2% annualized yield from GE without even owning shares.
On the other hand, I’d get to buy GE at a 3.0% discount to what it was trading for at the time I executed the trade on Friday.
Since double-digit income is a no-brainer — and since I’m interested in owning GE at today’s price anyways (let alone an additional 3% discount) — either scenario works for me.
Let’s take a closer look at how each would play out…
Scenario 1: GE falls below $25 by September 20
If GE falls below $25 by September 20, I’ll be obligated to buy 300 shares at $25 per share. That’s cheaper than the $25.31 price the stock was trading for when I sold the puts on Friday.
In exchange for my agreement, I was paid an instant $156.00 (300 shares X $0.52 per share) before commissions. This money was deposited into my account immediately.
Taking this income into consideration – and subtracting out the commissions – my cost basis drops to $24.54 per share.
That’s a 3.0% discount to the $25.31 share price that GE was selling for at the time I made this trade.
Bottom line? In “Scenario 1” I get paid instant cash while waiting to buy GE at a discount to its current price. I’ll take it!
Scenario 2: GE stays above $25 by September 20
If GE stays above $25 by September 20, the contract expires worthless and I get to keep the $156.00 in income (before commissions).
After commissions, this works out to a 1.9% return on what my purchase obligation would have been ($0.52 / $25) in just 50 days.
If I can repeat this trade over the period of a year I could generate a 14.2% yield from GE without even owning the stock. Compare that to the stocks “regular” annual dividend yield of 3.3%.
This trade is a great example of how a “10% Trade” can be both safer AND generate more income than simply buying a stock at the market price.
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.
Greg Patrick
TradesOfTheDay.com
P.S. This isn’t the first time I’ve made a “10% Trade” with General Electric (GE). To see the results of my previously published trade, along with all other real-life, real-money “10% Trades” I’ve made available to the public, check out the Track Record page.
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