While I already own Apple (AAPL) in my dividend growth portfolio — and plan on holding it for the long-haul — I’m always open to potential “10% Trade” opportunities with the stock that could boost my income.
If you’re just joining us, a “10% Trade” is a conservative income-oriented trade that involves selling either a covered call or a cash-secured put on a high-quality dividend growth stock trading at a reasonable price.
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.
With this in mind, I made another “10% Trade” with Apple on Friday.
At the end of the day, this “10% Trade” should generate a 46.1% to 52.2% annualized yield, which is significantly more income than what I’m collecting from my “buy and hold” shares.
The income I’m collecting also helps reduce my cost basis, lowering my overall risk.
Here’s how it works…
Opportunity to Capture a 46.1% to 52.2% Annualized Yield from AAPL
On Friday I bought 100 shares of AAPL for $108.82 per share and simultaneously “sold to open” one January 17, $109.29 covered call for $2.24 per share.
After accounting for commissions, my cost basis was reduced to $106.76, which is like buying Apple at a 1.9% discount to the price it was trading for when I placed the trade on Friday.
There are two likely ways this “10% Trade” will work out — and they both spell at least double-digit annualized yields on my purchase price…
Scenario #1: AAPL stays under $109.29 by January 17
If AAPL stays under $109.29 by January 17 I’ll get to keep my 100 shares.
In the process I’ll also have received $224.00 in covered call income ($2.24 x 100 shares).
The covered call income, which is known as “premium” in the options world, was collected instantly on Friday.
At the end of the day, if “Scenario 1” plays out I’ll be looking at $206.47 in profit after commissions.
On a percentage basis, I received an instant 2.1% yield for selling the covered call ($2.24 / $108.82).
When I subtract out the commissions I’m looking at a 1.9% yield in 15 days… which works out to a 46.2% annualized yield.
Scenario #2: AAPL climbs over $109.29 by January 17
If AAPL climbs over $109.29 by January 17 my 100 shares will get sold (“called away”) at $109.29 per share.
In “Scenario 2” — like “Scenario 1” — I get to keep the $224 in covered call income ($2.24 x 100 shares). But I’ll also generate $47.00 in capital gains ($0.47 X 100).
In this scenario, after commissions I’ll be looking at a $233.48 profit.
From a percentage standpoint, this “10% Trade” will deliver an instant 2.1% yield for selling the covered call ($2.24 / $108.82) and a 0.4% return from capital gains ($0.47 / $108.82).
After subtracting out the commissions, I’m looking at a 2.1% total return in 15 days.
If I can repeat these results over the period of a year, I could generate a 52.2% yield from AAPL.
This setup with AAPL is just one more example of why I’m such a big fan of “10% Trades.”
As I’ve mentioned before, as long as the market continues to offer safe, income-generating opportunities like this one, I’ll be more than happy to take them.
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