Apple (AAPL) continues to be a great stock to consider for a “10% Trade.”
In short, it’s a high-quality company, it’s growing its dividend, it looks undervalued, and it pays HUGE income by way of options premiums.
As a refresher, a “10% Trade” is a conservative income-oriented trade that involves generating a 10%-plus annualized yield by selling either a covered call or a cash-secured put on a 1) high-quality 2) dividend growth stock 3) trading at a reasonable price.
At current prices, Apple seems to meet all three criteria, which makes it an ideal candidate for one of these trades.
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. Yet the income they generate can be significant.
Consider the “10% Trade” I made with Apple on Friday: it lasts just 21 days yet pays me the equivalent of one year’s worth of dividend income, immediately, for simply agreeing to buy the stock at a cheaper price than what it was selling for at the time I made the trade.
Since I’m already interested in buying 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 what I’m talking about…[hana-code-insert name=’adsense-article’ /]At the time I made the trade on Friday, AAPL was selling for $130.57 per share and the June 19, $130 puts were going for $2.14 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 27.5% annualized yield from AAPL without even having to buy those 100 shares.
On the other hand, I’d get paid to buy 100 shares of AAPL at a slight discount to what they were selling for at the time I made the trade on Friday.
With this in mind, I’ll be happy with either scenario.
Let’s take a closer look at how each would play out…
Scenario 1: AAPL falls below $130 by June 19
If AAPL trades below $130 by June 19, I may be obligated to buy 100 shares at $130 per share.
In exchange for my agreement, I was paid an instant $214.00 (100 shares X $2.14 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 $128.03 per share.
That’s a 1.9% discount to the $130.57 share price that AAPL was selling for at the time I made this trade on Friday.
Bottom line? In “Scenario 1” I get paid instant cash while waiting for the opportunity to buy back 100 shares of AAPL at a slight discount to what they were selling for on Friday when I made the trade.
Scenario 2: AAPL stays above $130 by June 19
If AAPL stays above $130 by June 19, 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 $214.00 in income (before commissions).
After commissions, this works out to a 1.6% return on what my purchase obligation would have been ($2.14 / $130) in just 21 days.
If I can repeat this trade over the period of a year I could generate a 27.5% yield from AAPL without even owning the stock. Compare this yield to the stock’s “regular” forward annual dividend yield of 1.6% at current prices and you’ll see how these trades can generate so much income.
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.