With shares trading above my purchase price of $108.65, yesterday seemed like a good time to make a new high-yield trade with J.M. Smucker Company (SJM).
My trade involved selling one January 19, 2018 $110 call for $6.50 per share.
The call option I sold on that trade expired worthless on October 20, so I’ve been holding the shares since then. Now that the stock is trading handily above my purchase price, 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: SJM stays under $110 by January 19, 2018
If SJM stays under $110 by January 19 I’ll get to keep my 100 shares.
In the process, I’ll also have received $650 in call income ($6.50 x 100 shares).[hana-code-insert name=’adsense-article’ /]The 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 $644.34 in profit after commissions.
On a percentage basis, I received an instant 6.0% yield for selling the call ($6.50 / $108.65).
When I subtract out the commissions I’m looking at a 5.9% yield in 60 days… which works out to a 36.1% annualized yield.
Scenario #2: SJM climbs over $110 by January 19, 2018
If SJM climbs over $110 by January 19, my 100 shares will get sold (“called away”) at $110 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $650 in call income ($6.50 x 100 shares). I’ll also generate $135 in capital gains ($1.35 X 100) because I bought at $108.65 and will be selling at $110.
In this scenario, after commissions I’ll be looking at a $744.39 profit.
From a percentage standpoint, this high-yield trade will deliver an instant 6.0% yield for selling the call ($6.50 / $108.65) and a 1.2% gain ($1.35 / $108.65).
After subtracting out the commissions, I’m looking at an 7.1% total return in 60 days.
That works out to a 43.4% annualized yield from SJM.
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’ /]