With shares trading near my purchase price of $79.79, it seemed like a good time to make a new “High-Yield Trade” with CVS Health (CVS).
I made the trade on Friday, and it involved selling one September 22, $80.00 call for $1.55 per share.
The previous call I sold expired worthless back in April so I’m simply selling another round of calls on those same shares to generate additional income.
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 $80.00 by September 22
If CVS stays under $80.00 by September 22 I’ll get to keep my 100 shares.
In the process, I’ll also have received $155 in covered call income ($1.55 x 100 shares).[hana-code-insert name=’adsense-article’ /]The covered call income — known as a “premium” in the options world — was collected instantly 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 $149.35 in profit after commissions.
On a percentage basis, I received an instant 1.9% yield for selling the covered call ($1.55 / $79.79).
When I subtract out the commissions I’m looking at a 1.9% yield in 42 days… which works out to a 16.3% annualized yield.
Scenario #2: CVS climbs over $80 by September 22
If CVS climbs over $80.00 by September 22 my 100 shares will get sold (“called away”) at $80.00 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $155 in covered call income ($1.55 x 100 shares). I’ll also generate a $21.00 in capital gains ($0.21 X 100) because I bought at $79.79 and will be selling at $80.00.
In this scenario, after commissions I’ll be looking at a $165.40 profit.
From a percentage standpoint, this “High-Yield Trade” will deliver an instant 1.9% yield for selling the covered call ($1.55 / $79.79) and a 0.3% gain ($0.21 / $79.79).
After subtracting out the commissions, I’m looking at a 2.1% total return in 42 days.
That works out to an 18.0% annualized yield from CVS.
P.S. The reason I’ve gone public with many of my real-life, real-money “High-Yield 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’ /]