With shares trading near my purchase price of $36.27, Friday seemed like a good time to make a new high-yield trade with Hormel Foods (HRL).
My trade involved selling two January 18, 2019 $37.50 calls for $1.65 per share.[hana-code-insert name=’adsense-article’ /]I sold this call on the 200 shares I originally purchased at $36.27 per share during a high-yield trade I made in early January.
Those call options just expired on June 15, so my latest trade simply involves selling another round of calls on these same 200 shares.
Every time you’re able to sell an option like this, you generate additional income.
There are likely two ways this new trade will work out — and they both spell outsized annualized yields.
Scenario #1: HRL stays under $37.50 by January 18, 2019
If HRL stays under $37.50 by January 18, I’ll get to keep my 200 shares.
In the process, I’ll also have received $330 in call income ($1.65 x 200 shares).[hana-code-insert name=’adsense-article’ /]The call income — known as a “premium” in the options world — was collected 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 $323.66 in profit after commissions.
On a percentage basis, I received an instant 4.5% yield for selling the calls ($1.65 / $36.27).
When I subtract out the commissions I’m looking at a 4.5% yield in 210 days… which works out to a 7.8% annualized yield.
Scenario #2: HRL climbs over $37.50 by January 18, 2019
If HRL climbs over $37.50 by January 18, my 200 shares will get sold (“called away”) at $37.50 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $330 in call income ($1.65 x 200 shares). I’ll also generate $246 in capital gains ($1.23 X 200) because I bought at $36.27 and will be selling at $37.50.
In this scenario, after commissions I’ll be looking at a $564.71 profit.
From a percentage standpoint, this high-yield trade will deliver an instant 4.5% yield for selling the calls ($1.65 / $36.27) and a 3.4% gain ($1.23 / $36.27).
After subtracting out the commissions, I’m looking at a 7.8% total return in 210 days.
That works out to a 13.5% annualized yield from HRL.
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’ /]