I Just Made This “10% Trade” with Disney (DIS)

[stextbox id=”info”]Please keep in mind that these “10% Trade” alerts are for information purposes only. We’re not registered financial advisors and these aren’t specific trade recommendations for you as an individual. Each of our readers have different financial situations, risk tolerance, goals, time frames, etc. The ideas we publish are simply ideas that we feel fit our specific needs and that we’re personally making in our own portfolios. You should also be aware that some of the trade details (specifically stock prices and options premiums) are certain to change from the time we make our trade to the time you’re alerted about it. So please don’t attempt to make this “10% Trade” yourself without first doing your own due diligence and research.[/stextbox]

As one of the highest-quality companies in the world, Disney (DIS) can be a great foundation for your portfolio.

In short, it’s a prime example of a company that offers a mix of both growth AND income.

Now, thanks to its recent sell-off, investors and traders alike could be looking at a compelling buying opportunity today.

I’m personally taking advantage of the situation by accumulating shares of the stock for my long-term dividend growth portfolio.

I’m also making a “10% Trade” that’s poised to deliver a 10%-plus annualized yield.

Here’s how…

Opportunity to Capture a 21.0% to 29.7% Annualized Yield from Disney
On Friday I bought 100 shares of DIS for $108.82 per share and simultaneously “sold to open” one September 18, $110.00 covered call for $2.71 per share.

With this in mind, there are likely two ways this trade will work out — and they both spell at least double-digit annualized yields on my purchase price…

"10% Trade" with Disney (DIS)Scenario #1: Disney stays under $110.00 by September 18
If Disney stays under $110 by September 18, I’ll get to keep my 100 shares.

In the process I’ll also have received $271.00 in covered call income ($2.71 x 100 shares).

The covered call income — known as a “premium” in the options world — was collected instantly on Friday. It was deposited in the account where I made the trade, which is my 401k retirement account.

At the end of the day, if “Scenario 1” plays out I’ll be looking at $262.30 in profit after commissions and fees.

On a percentage basis, I received an instant 2.5% yield for selling the covered call ($2.71 / $108.82).

When I subtract out the commissions and fees I’m looking at a 2.4% yield in 42 days, which works out to a 21.0% annualized yield.

[hana-code-insert name=’adsense-article’ /]Scenario #2: Disney climbs over $110 by September 18
If Disney climbs over $110 by September 18 my 100 shares will get sold (“called away”) at $110 per share.

Like “Scenario 1”, I get to keep the $271 in covered call income ($2.71 x 100 shares)… but I’ll also generate $118 in capital gains ($1.18 X 100).

In this scenario, after commissions and fees I’ll be looking at a $372.11 profit.

From a percentage standpoint, this “10% Trade” will deliver and instant 2.5% yield for selling the covered call ($2.71 / $108.82) and a 1.1% return from capital gains ($1.18 / $108.82).

After subtracting out the commissions and fees, I’m looking at a 3.4% total return in 42 days.

That works out to a 29.7% annualized yield from Disney. Not bad, considering the stock’s “regular” yield is just 1.1%.

Greg Patrick

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