With shares trading above my purchase price of $53.42, yesterday seemed like a perfect time to make a new high-yield trade with Starbucks (SBUX).
My trade involved selling one November 24, $55 call for $1.20 per share.
I sold this call on the 100 shares I purchased for $53.42 per share during a previous high-yield trade.
The call option I sold on that trade expired worthless on Friday, 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: SBUX stays under $55 by November 24
If SBUX stays under $55 by November 24 I’ll get to keep my 100 shares.
In the process, I’ll also have received $120 in covered call income ($1.20 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 $114.35 in profit after commissions.
On a percentage basis, I received an instant 2.2% yield for selling the covered call ($1.20 / $53.42).
When I subtract out the commissions I’m looking at a 2.1% yield in 32 days… which works out to a 24.4% annualized yield.
Scenario #2: SBUX climbs over $55 by November 24
If SBUX climbs over $55 by November 24, my 100 shares will get sold (“called away”) at $55 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $120 in covered call income ($1.20 x 100 shares). I’ll also generate a $158 in capital gains ($1.58 X 100) because I bought at $53.42 and will be selling at $55.
In this scenario, after commissions I’ll be looking at a $267.40 profit.
From a percentage standpoint, this high-yield trade will deliver an instant 2.2% yield for selling the covered call ($1.20 / $53.42) and a 3.0% gain ($1.58 / $53.42).
After subtracting out the commissions, I’m looking at a 5.0% total return in 32 days.
That works out to a 57.1% annualized yield from SBUX.
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’ /]