With shares trading well above my purchase price of $81.15, yesterday seemed like a good time to make a new high-yield trade with Medtronic (MDT).
For this new trade, I sold one May 17, 2019 $92.50 call option for $1.95 per share.
[hana-code-insert name=’adsense-article’ /]I sold this call on the 100 shares I originally purchased at $81.15 per share during a high-yield trade I made back in April 2018.That previous call option generated $163 in cash when I sold it and the contract expired in June 2018, so I’m still holding the shares and have been collecting dividend income in the process.
Yesterday, for my new high-yield trade, I simply sold another call option on those same 100 shares I originally purchased in April 2018.
Every time you’re able to sell an option like this, you generate additional income.
It’s a great way to turn a stock’s “normal” yield (if you rely on dividends alone) into a high-yielder.
There are likely two ways this new trade will work out — and they both spell outsized annualized yields.
Scenario #1: MDT stays under $92.50 by May 17, 2019
If MDT stays under $92.50 by May 17, I’ll get to keep my 100 shares.
In the process, I’ll also have received $195 in call income ($1.95 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 $195 in profit (excluding any commissions and fees).
On a percentage basis, I’ll be banking a 2.4% yield ($1.95 / $81.15) in 60 days for selling the call. That works out to a 14.6% annualized yield.
Scenario #2: MDT climbs over $92.50 by May 17, 2019
If MDT climbs over $92.50 by May 17, my 100 shares will get sold (“called away”) at $92.50 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $195 in call income ($1.95 x 100 shares). I’ll also generate $1,135 in capital gains ($11.35 X 100) because I bought at $81.15 and will be selling at $92.50.
In this scenario, after commissions I’ll be looking at a $1,330 profit.
From a percentage standpoint, this high-yield trade will deliver an instant 2.4% yield for selling the call ($1.95 / $81.15) and a 14.0% gain ($11.35 / $81.15).
Excluding any commissions and fees, I’m looking at a 16.4% total return in 60 days.
That works out to a 99.8% annualized yield from MDT.
Greg Patrick
TradesOfTheDay.com
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.
[stextbox id=”info”]Please keep in mind that these “High-Yield Trade” alerts are for information purposes only. We’re not registered financial advisors and these aren’t specific trade recommendations for you as an individual. Each of our readers have different financial situations, risk tolerance, goals, time frames, etc. The ideas we publish are simply ideas that we feel fit our specific needs and that we’re personally making in our own portfolios. You should also be aware that some of the trade details (specifically stock prices and options premiums) are certain to change from the time we make our trade to the time you’re alerted about it. So please don’t attempt to make this “High-Yield Trade” yourself without first doing your own due diligence and research.[/stextbox] [hana-code-insert name=’MMPress’ /]