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 September 18, 2020 $115 option for $5.80. 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.
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 2019.
In January 2020, I sold one March 20, 2020 $115 option for $3.90, which generated $390 in cash.
Now, 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.
Added all up, here’s the call income these UPS has generated so far:
Call Option Income from UPS Trades:
$322 (100 @ $3.22) – April 2019
$350 (100 @ $3.50) – July 2019
$364 (100 @ $3.60) – October 2019
$390 (100 @ $3.90) – January 2020
$580 (100 @ $5.80) – July 2020 (yesterday’s trade!)
Considering my initial outlay of $11,362 — when I bought 100 shares at $113.62 — the call income alone has now generated a 17.7% realized return in cash. Throw in the 3%-plus dividend yield, and that puts the total income at 20%-plus… from a stock that has basically traded sideways!
If you followed along with my original trade, consider selling another round of call options here. I just sold the September 18, 2020 $115 option for $5.80 (which generated $580 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 September 18
If UPS stays under $115 by September 18, I’ll get to keep my 100 shares.
In the process, I’ll also have received $5.80 in call income ($5.80 x 100 shares).
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 5.1% yield for selling the call ($5.80 / $113.62).
In the end, I’m looking at a 5.1% yield in 74 days… which works out to a 25.2% annualized yield.
Scenario #2: UPS climbs over $115 by September 18
If UPS climbs over $115 by September 18, my 100 shares will get sold (“called away”) at $115 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $580 in call income ($5.80 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 $718 profit.
From a percentage standpoint, this high-yield trade will deliver an instant 5.1% yield for selling the call ($5.80/ $113.62) and a 1.2% capital gain ($1.38 / $113.62).
At the end of the day, I’m looking at a 6.3% total return in 74 days.
That works out to a 31.2% annualized yield from UPS.
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.Legendary Stock-Picker Predicts Next 1,000% Stock [sponsor]
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