With shares up roughly 18% over the past month — and more importantly, trading a little under my purchase price of $90.60 per share — it seemed like a good time to make a new “10% Trade” with Chevron (CVX) yesterday.
My trade involved selling one November 27, $91 covered call for $1.76 per share.
I sold this call on the 100 shares that I had purchased for $90.60 per share during a previous “10% Trade”.
There are likely two ways this trade will work out — and they both spell at least double-digit annualized yields on my purchase price…
Scenario #1: Chevron stays under $91 by November 27
If Chevron stays under $91 by November 27 I’ll get to keep my 100 shares.
In the process, I’ll also have received $176.00 in covered call income ($1.76 x 100 shares).[hana-code-insert name=’adsense-article’ /]The covered call income — known as a “premium” in the options world — was collected instantly yesterday.
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 $167.25 in profit after commissions.
On a percentage basis, I received an instant 1.9% yield for selling the covered call ($1.76 / $90.60).
When I subtract out the commissions I’m looking at a 1.8% yield in 44 days… which works out to a 15.3% annualized yield.
Scenario #2: Chevron climbs over $91 by November 27
If Chevron climbs over $91 by November 27 my 100 shares will get sold (“called away”) at $91 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $176.00 in covered call income ($1.76 x 100 shares). I’ll also generate $40.00 in capital gains ($0.40 X 100).
In this scenario, after commissions I’ll be looking at a $199.06 profit.
From a percentage standpoint, this “10% Trade” will deliver an instant 1.9% yield for selling the covered call ($1.76 / $90.60) and a 0.4% return from capital gains ($0.40 / $90.60).
After subtracting out the commissions, I’m looking at a 2.2% total return in 44 days.
That works out to an 18.2% annualized yield from Chevron.
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.[hana-code-insert name=’MMPress’ /]