Apple (AAPL) is a great stock to consider for a “10% Trade.”
In short, it’s a high-quality company, it’s growing its dividend, it’s reasonably-priced, and it pays HUGE income by way of options premiums. In addition, if Bottarelli Research is right, then this could be our last chance to buy the stock anywhere near $100.[hana-code-insert name=’adsense-article’ /]As a refresher, 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.
While these trades typically last six to 10 weeks, this time frame isn’t set in stone.
Sometimes they last longer… sometimes shorter. Sometimes much shorter.
Consider the “10% Trade” I made with Apple yesterday: it lasts just FOUR days yet pays me the equivalent of one year’s worth of dividend income, immediately, for simply agreeing to buy the stock at a discount to what it’s currently trading for.
Since I’m already interested in buying additional shares at their current price level, then of course I’m interested in getting paid for the opportunity to buy them for even cheaper.
Here’s how it works…
At the time I made the trade yesterday, AAPL was selling for $99.20 per share and the October 24, $99 puts were going for $2.09 per share.
My “10% Trade” involved selling one of these puts (that’s 100 shares)… and there are only two possible ways this trade will work out.
On one hand, I’d get to generate a 184.7% annualized yield from AAPL without even having to buy those additional 100 shares.
On the other hand, I’d get to buy 100 shares of AAPL at a 2.1% discount to what they were trading for at the time I executed the trade yesterday.
Since triple-digit annualized income is a no-brainer — and since I’m interested in buying more shares of AAPL at today’s price anyways (let alone an additional 2.1% discount) — either scenario works for me.
Let’s take a closer look at how each would play out…
Scenario 1: AAPL falls below $99 by October 24
If AAPL falls below $99 by October 24, I’ll be obligated to buy 100 shares at $99 per share. That’s slightly cheaper than the $99.20 price the stock was trading for when I sold the puts yesterday.
In exchange for my agreement though, I was paid an instant $209.00 (100 shares X $2.09 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 $97.08 per share.
That’s a 2.1% discount to the $99.20 share price that AAPL was selling for at the time I made this trade.
Bottom line? In “Scenario 1” I get paid huge, instant cash while waiting for the opportunity to buy AAPL at a slight discount to its current price. I’ll take it!
Scenario 2: AAPL stays above $99 by October 24
If AAPL stays above $99 by October 24, the contract expires worthless. That means I won’t be required to buy the 100 shares of stock… yet I still get to keep the $209.00 in income (before commissions).
After commissions, this works out to a 2.0% return on what my purchase obligation would have been ($2.09 / $99) in just FOUR days.
If I can repeat this trade over the period of a year I could generate a 184.7% yield from AAPL without even owning additional stock. Compare this yield to the stock’s “regular” annual dividend yield of 1.9% at current prices.
I’ll continue to keep you posted as I make these trades, but please keep in mind that they’re not intended to be specific recommendations for you as an individual. 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.