While these trades typically last six to 10 weeks, this time frame isn’t set in stone.
Sometimes they last longer… sometimes shorter.
Regardless of how long they last, at the end of the day, a “10% Trade” is designed to generate safe, 10%-plus annualized yields.
That’s precisely why they’re so attractive to anyone looking for a low-risk way to boost their income.
In fact, one of the many neat things about a “10% Trade” is that you could potentially generate hundreds of dollars in extra income for simply agreeing to buy and sell shares of the same exact stock at the same exact price.
I realize that sounds crazy, but consider a couple real-life, real-money trades I’ve already shared with Trades Of The Day readers…
- “10% Trade” #1: A few months ago, I collected $242 for agreeing to buy 200 shares of Wal-Mart (WMT) at $75.00 per share.
- “10% Trade” #2: Not long after, I collected $158 for agreeing to sell those same shares at the same exact price of $75.00 per share.
That’s $400 in income for simply agreeing to buy and sell shares of Wal-Mart at the same exact price.
Of course, setups like these don’t present themselves all the time — but when they do, I try to take advantage of them.
With this in mind, one such opportunity just came up with International Business Machines (IBM).
At the end of the day, I’m collecting $424 in income for simply agreeing to buy and sell IBM at $162.50 per share.
Specifically, if you recall, last month I collected $254 for agreeing to buy 100 shares of IBM at $162.50 per share.
And with the “10% Trade” I made yesterday, I collected $170 for agreeing to sell those same shares at the same exact price of $162.50.
In the process, I’m poised to generate an 18.2% to 19.1% annualized yield.
Here’s how it works…
Capturing an 18.2% to 19.1% Annualized Yield from IBM
Yesterday I sold one December 20, $162.50 covered call on IBM for $1.70 per share. I sold this call on the 100 shares I just bought through another “10% Trade.” You can review the details of that original trade here and the results here.
There are only two possible ways this new trade will work out… and they both spell at least double-digit annualized yields on my $162.50 purchase price.
Scenario #1: IBM stays under $162.50 by December 20
If IBM stays under $162.50 by December 20 I’ll get to keep my 100 shares.
In the process I’ll also have received $170 in covered call income ($1.70 x 100 shares).
The covered call income — known as a “premium” in options speak — was collected instantly yesterday. It was deposited in my brokerage account.
At the end of the day, if “Scenario 1″ plays out I’ll be looking at $160.89 in profit after commissions.
On a percentage basis, I received an instant 1.0% yield for selling the covered calls ($1.70 / $162.50).
When I subtract out the commissions I’m looking at a 1.0% yield in 19 days… which works out to a 19.1% annualized yield. That’s seven times IBM’s “regular” annual dividend yield of 2.7%. I’ll take it!
Scenario #2: IBM climbs over $162.50 by December 20
If IBM climbs over $162.50 by December 20, my 100 shares will get sold (“called away”) at $162.50 per share.
In this scenario, I won’t make any capital gains because I bought shares at $162.50 and I’ll be selling them at $162.50… but I’ll still have collected the $170 in covered call income ($1.70 x 100 shares).
After commissions, I’ll be looking at a $153.51 profit.
From a percentage standpoint, this “10% Trade” will deliver an instant 1.0% yield for selling the covered calls ($1.70 / $162.50).
After subtracting out the commissions, I’m looking at a 0.9% total return in 19 days, which works out to an 18.2% annualized yield from IBM.
Bottom Line: Either way this “10% Trade” works out offers me the opportunity to pull in at least a 10% annualized yield from International Business Machines (IBM). As long as the market continues to offer safe, income-generating opportunities like this one, I’ll be more than happy to take them.
Greg Patrick
TradesOfTheDay.com
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 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.