With shares trading above my purchase price of $113.62, yesterday seemed like a good time to make a new high-yield trade with United Parcel Service (UPS).
For this new trade, I sold one March 20, 2020 $115 option for $3.90. In short, I sold another call option on the 100 shares of UPS I had originally purchased for $113.62 in a high-yield trade I made back in April 2019.
That original high-yield trade generated $322 in cash and the option expired on June 21, 2019.
In late July, I sold the October 18, 2019 $120 option on those same 100 shares for $3.50 per share (which generated $350 in cash).
That option expired as well, so on October 21, 2019 I sold the December 20, 2019 $120 option for $3.64.
That high-yield trade generated $364 in cash, and the option expired back in December.
Today, with UPS still trading above my purchase price of $113.62, it seems like a great time to sell yet another call option and generate additional income on these same 100 shares.
If you followed along with my original trade, consider selling another round of call options here. I just sold the March 20, 2020 $115 option for $3.90 (which generated $390 in cash).
Every time you’re able to sell an option like this, you generate additional income.
It’s a trade-off… and one I’m willing to make because this strategy, by its very nature — selling a call option instead of buying one — is designed to be conservative and to generate income.
There are likely two ways this new trade will work out — and they both spell double-digit annualized yields.
Scenario #1: UPS stays under $115 by March 20
If UPS stays under $115 by March 20, I’ll get to keep my 100 shares.
In the process, I’ll also have received $3.90 in call income ($3.90 x 100 shares).
The call income — known as a “premium” in the options world — was collected Monday.
It was deposited in the account where I made the trade, which is my 401k retirement account.
On a percentage basis, I received an instant 3.4% yield for selling the call ($3.90 / $113.62).
In the end, I’m looking at a 3.2% yield in 53 days… which works out to a 23.7% annualized yield.
Scenario #2: UPS climbs over $115 by March 20
If UPS climbs over $115 by March 20, my 100 shares will get sold (“called away”) at $115 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $390 in call income ($3.90 x 100 shares). I’ll also generate a $138 gain ($1.38 x 100) because I bought at $113.62 and will be selling at $115.
In this scenario, I’ll be looking at a $528.00 profit.
From a percentage standpoint, this high-yield trade will deliver an instant 3.4% yield for selling the call ($3.90/ $113.62) and a 1.2% capital gain ($1.38 / $113.62).
At the end of the day, I’m looking at a 4.6% total return in 53 days.
That works out to a 32.0% annualized yield from UPS.
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 easy 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]