With shares now trading over my purchase price of $79.79 per share — it seemed like a good time to make a new “10% Trade” with CVS Health (CVS).
I made the trade yesterday, and it involved selling one June 16, $80 covered call for $2.92 per share.
I sold this call on the 100 shares that I had purchased for $79.79 per share during a previous “10% Trade”.
That call expired worthless last week so I’m simply selling another round of calls on those same shares.
Here’s a quick summary of the call income I’ve collected so far since buying these 100 shares on February 21, 2017:
- I collected $2.09 per share in call income on February 21, 2017
- I collected $2.92 per share in call income on April 25, 2017
So I’ve collected $501 in total income so far ($5.01 per share), which is 6.3% of my original investment of $7,979 (100 shares x $79.79 per share).
If I was simply holding the shares for their dividends alone, and not selling rounds of calls as well, I wouldn’t have generated any income yet.
I’m telling you all of this because I think it’s a good example of the income-generating power of a “10% Trade”.
There are likely two ways this new trade will work out — and they both spell at least double-digit annualized yields on my purchase price…
Scenario #1: CVS stays under $80 by June 16
If CVS stays under $80 by June 16 I’ll get to keep my 100 shares.
In the process, I’ll also have received $292.00 in covered call income ($2.92 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 $286.40 in profit after commissions.
On a percentage basis, I received an instant 3.7% yield for selling the covered call ($2.92 / $79.79).
When I subtract out the commissions I’m looking at a 3.6% yield in 52 days… which works out to a 25.2% annualized yield.
Scenario #2: CVS climbs over $80 by June 16
If CVS climbs over $80 by June 16 my 100 shares will get sold (“called away”) at $80 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $292.00 in covered call income ($2.92 x 100 shares). I’ll also generate $21.00 in capital gains ($0.21 X 100) because I bought at $79.79 and will be selling at $80.
In this scenario, after commissions I’ll be looking at a $302.45 profit.
From a percentage standpoint, this “10% Trade” will deliver an instant 3.7% yield for selling the covered call ($2.92 / $79.79) and a 0.3% return from capital gains ($0.21 / $79.79).
After subtracting out the commissions, I’m looking at a 3.8% total return in 52 days.
That works out to a 26.6% annualized yield from CVS.
Greg Patrick
TradesOfTheDay.com
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.
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