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.
I’m talking about capturing 10%-plus annualized yields from companies like United Parcel Service (UPS), Microsoft (MSFT), Starbucks (SBUX), Johnson & Johnson (JNJ) and more.
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 Amgen (AMGN) this past Wednesday, December 30…
At the time I made my trade, Amgen was selling for $228.35 per share and the June 18, 2021, $215 puts were going for $12.05 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 a 12.0% annualized yield from Amgen without even owning the stock.
That’s nearly four times the stock’s “regular” dividend yield of 3.1%.
On the other hand, I’m getting paid $1,205 to buy Amgen — 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: AMGN falls below $215 by June 18, 2021
If AMGN falls below $215 by June 18, I may be obligated to buy 100 shares at $215 per share.
In exchange for my agreement, I was paid an instant $1,205 (100 shares X $12.05 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 $202.95 per share.
That’s an 11.1% discount to the $228.35 share price that AMGN was selling for at the time I made this trade last Wednesday.
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: AMGN stays above $215 by June 18, 2021
If AMGN stays above $215 by June 18, the contract expires worthless and I get to keep the $1,205 in income.
This works out to a 5.6% return on what my purchase obligation would have been ($12.05 / $215) in 170 days.
If I can repeat these results over the period of a year I could generate a 12.0% yield from Amgen 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 on our Dividends and Income YouTube channel. If you want an alert as soon as the video is published, be sure to subscribe to the channel and tap the notification bell.
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 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.
[stextbox id=”info”]Please keep in mind that these 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]