I’m alerting you to a high-yield trade I made with Allstate (ALL) last week — a high-quality dividend growth stock that looks cheap right now.
At the time I made my trade on June 17, Allstate was selling for around $127.20 per share and the January 21, 2022, $125 put options were going for around $8.70 per share.
My trade involved selling one of these puts and there are two probable ways this trade will work out…
Scenario 1: Allstate falls below $125 by January 21, 2022
If ALL falls below $125 by January 21, the option may get exercised. If that happens, I will be obligated to buy 100 shares at $125 per share.
In exchange for this agreement, I was paid an instant $870 (100 shares X $8.70 per share).
This money was immediately deposited into my 401(k) retirement account, where I made the trade.
Taking this income into consideration, my cost-basis would drop to $116.30 per share.
That’s an 8.6% discount to the $127.20 share price that Allstate was selling for at the time I made this trade.
Scenario 2: Allstate stays above $125 by January 21, 2022
If ALL stays above $125 by January 21, the contract expires worthless and I get to keep the $870 in income.
This works out to a 7.0% return on what my purchase obligation would have been ($8.70 / $125) in 218 days.
If I can repeat these results over the period of a year I could generate an 11.7% yield from Allstate without even buying shares. Selling covered options like this is one of my favorite ways to generate “instant income” from high-quality dividend growth stocks.
P.S. When it comes to selling puts, I’ve developed a few rules that fit my portfolio objectives. I only sell a put option if:
- I want to own the underlying stock anyways
- I’ll be buying the stock at a reasonable price (which is typically fair value or better)
- The strike price of the option I’m selling is At-The-Money (ATM) or Out-of-The-Money (OTM)
- I’m comfortable owning the stock for the long-haul in case the price drops significantly below my strike price
- I’m comfortable “letting the stock get away from me” if I don’t get “put” shares and the stock takes off
- My position-sizing makes sense if I’m “put” the shares
- I can make the trade in a retirement account, such as an IRA or 401(k) to minimize taxes and tax paperwork.
Virginia Stock-Picking Millionaire Says It's Not About Diversification! One single stock under $5- that trades under a secret name- could help you build your retirement. His details are here.