A “High-Yield Trade” offers you the opportunity to generate relatively safe, double-digit annualized income from some of the best companies in the world.
In short, a high-yield trade is a conservative income-oriented trade that involves selling either a covered call or a cash-secured put on a reasonably-priced, high-quality dividend growth stock.
These trades typically last 1-3 months — and not only are they a relatively safe way to potentially double… triple… or even quadruple your annualized yield, but they can be a great way to buy a reasonably-valued stock for even cheaper.
Consider the high-yield trade I made with Medtronic (MDT) this past Thursday, October 8…
At the time I made my trade, Medtronic was selling for $108 per share and the January 15, 2021, $100 puts were going for $3.72 per share.
My high-yield trade involved selling one of these puts… and there are two likely ways this trade will work out.
On one hand, I’d get to generate an 13.7% annualized yield from Medtronic without even owning the stock.
That’s over six times the stock’s “regular” dividend yield of 2.2%.
On the other hand, I’m getting paid $372 to buy Medtronic — an already reasonably-priced stock — for even cheaper than what it was just selling for.
That said, I’ll be happy however this trade works out.
Let’s take a closer look at each scenario…
Scenario 1: MDT falls below $100 by January 15, 2021
If MDT falls below $100 by January 15, I may be obligated to buy 100 shares at $100 per share.
In exchange for my agreement, I was paid an instant $372 (100 shares X $3.72 per share).
This money was deposited into my 401(k) retirement account, where I made the trade, immediately.
Taking this income into consideration, my cost-basis drops to $96.28 per share.
That’s a 10.9% discount to the $108 share price that MDT was selling for at the time I made this trade on Thursday.
Considering how the stock already looks reasonable at recent levels, the opportunity to pick up shares at an additional discount is particularly appealing to me.
Scenario 2: MDT stays above $100 by January 15, 2021
If MDT stays above $100 by January 15, the contract expires worthless and I get to keep the $372 in income.
This works out to a 3.7% return on what my purchase obligation would have been ($3.72 / $100) in 99 days.
If I can repeat these results over the period of a year I could generate an 13.7% yield from Medtronic without even buying shares.
As long as the market continues to offer relatively safe, income-generating opportunities like this one, I’ll be more than happy to take them.
I’ll be posting a video on this particular trade tomorrow on our Dividends and Income YouTube channel. If you want to watch my screen as I actually place this trade in my retirement account at Fidelity, be sure to subscribe to the channel and tap the notification bell so you’re alerted as soon as the video gets published.
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 double… triple… or even quadruple 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.