Yesterday, I sold one February 26, $71.50 covered call on Target (TGT) for $2.25 per share. I sold this call on the 100 shares of TGT that I purchased at $71.02 per share through a 10% Trade I made back in November.
There are two likely ways this trade will work out… and they both offer the potential to generate at least 10% annualized income on my original purchase price…
Scenario #1: Target stays under $71.50 by February 26
If Target stays under $71.50 by February 26 I’ll get to keep my 100 shares.
In the process, I’ll also have received $225.00 in covered call income ($2.25 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 Roth IRA account.
At the end of the day, if “Scenario 1” plays out I’ll be looking at $216.25 in profit after commissions.
On a percentage basis, I received an instant 3.2% yield for selling the covered call ($2.25 / $71.02).
When I subtract out the commissions I’m looking at a 3.0% yield in four days… which works out to a 278% annualized yield.
Scenario #2: Target climbs over $71.50 by February 26
If Target climbs over $71.50 by February 26 my 100 shares will get sold (“called away”) at $71.50 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $225.00 in covered call income ($2.25 x 100 shares). I’ll also generate $48 in capital gains ($0.48 X 100).
In this scenario, after commissions I’ll be looking at a $256.06 profit.
From a percentage standpoint, this “10% Trade” will deliver an instant 3.2% yield for selling the covered call ($2.25 / $71.02) and a 0.7% return from capital gains ($0.48 / $71.02).
After subtracting out the commissions, I’m looking at a 3.6% total return in four days.
That works out to a 329.2% annualized yield from Target.
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’ /]