With shares trading above my purchase price of $43.40, it seemed like a good time to make a new high-yield trade with General Mills (GIS).
This morning I sold one April 18, 2019 $47.50 call option for $1.17 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 back in April 2018.
That call option expired in July 2018. I then made a second high-yield trade and sold another call option on those same 100 shares back in August 2018 with an expiration date in January 2019. That call option generated $259 in cash when I sold it and the contract expired so I’m still holding the shares. Today, with GIS shares trading above my purchase price of $43.40, it seems like a great time to sell another call option.
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: GIS stays under $47.50 by April 18, 2019
If GIS stays under $47.50 by April 18, I’ll get to keep my 100 shares.
In the process, I’ll also have received $117 in call income ($1.17 x 100 shares).[hana-code-insert name=’adsense-article’ /]The call income — known as a “premium” in the options world — was collected immediately.
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 $111.35 in profit after commissions.
On a percentage basis, I received an instant 2.7% yield for selling the call ($1.17 / $43.40).
When I subtract out the commissions I’m looking at a 2.6% yield in 52 days… which works out to a 18.0% annualized yield.
Scenario #2: GIS climbs over $47.50 by April 18, 2019
If GIS climbs over $47.50 by April 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 $117 in call income ($1.17 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 $516.40 profit.
From a percentage standpoint, this high-yield trade will deliver an instant 2.7% yield for selling the call ($1.17 / $43.40) and a 9.4% gain ($4.10 / $43.40).
After subtracting out the commissions, I’m looking at an 11.9% total return in 52 days.
That works out to an 83.6% 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’ /]