With shares trading above my purchase price of $43.40, Friday seemed like a good time to make a new high-yield trade with General Mills (GIS).
My trade involved selling one January 18, 2019 $47.50 call for $2.59 per share.[hana-code-insert name=’adsense-article’ /]I sold this call on the 100 shares I originally purchased at $43.40 per share during a high-yield trade I made in April.
That call option expired on July 20, so my latest trade simply involves selling another call option on these same 100 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 double-digit annualized yields.
Scenario #1: GIS stays under $47.50 by January 18, 2019
If GIS stays under $47.50 by January 18, I’ll get to keep my 100 shares.
In the process, I’ll also have received $259 in call income ($2.59 x 100 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 $253.36 in profit after commissions.
On a percentage basis, I received an instant 6.0% yield for selling the call ($2.59 / $43.40).
When I subtract out the commissions I’m looking at a 5.8% yield in 168 days… which works out to a 12.7% annualized yield.
Scenario #2: GIS climbs over $47.50 by January 18, 2019
If GIS climbs over $47.50 by January 18, my 100 shares will get sold (“called away”) at $47.50 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $259 in call income ($2.59 x 100 shares). I’ll also generate $410 in capital gains ($4.10 X 100) because I bought at $43.40 and will be selling at $47.50.
In this scenario, after commissions I’ll be looking at a $658.41 profit.
From a percentage standpoint, this high-yield trade will deliver an instant 6.0% yield for selling the call ($2.59 / $43.40) and a 9.4% gain ($4.10 / $43.40).
After subtracting out the commissions, I’m looking at a 15.2% total return in 168 days.
That works out to a 33.0% annualized yield from GIS.
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’ /]