With shares trading well above my purchase price of $81.15, last Friday seemed like a good time to make a new high-yield trade with Medtronic (MDT).
For this new trade, I sold one July 19, 2019 $92.50 call option for $3.10 per share.
[hana-code-insert name=’adsense-article’ /]I sold this call on the 100 shares I originally purchased at $81.15 per share during a high-yield trade I made back in April 2018.That previous call option generated $163 in cash when I sold it and the contract expired in June 2018, so I’m still holding the shares and have been collecting dividend income in the process.
Then, on March 18, 2019, I sold another call option on those same 100 shares.
In short, I sold the May 17, 2019 $92.50 option and generated $195 in cash.
That option just expired on May 17, 2019 so I’m still holding the original 100 shares of MDT and have been collecting the stock’s dividends (in addition to the call income).
Friday, for my new high-yield trade, I simply sold another call option on those same 100 shares I originally purchased in April 2018.
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: MDT stays under $92.50 by July 19
If MDT stays under $92.50 by July 19, I’ll get to keep my 100 shares.
In the process, I’ll also have received $310 in call income ($3.10 x 100 shares).
[hana-code-insert name=’adsense-article’ /]The call income — known as a “premium” in the options world — was collected Friday.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 3.8% yield for selling the call ($3.10 / $81.15).
In the end, I’m looking at a 3.8% yield in 56 days… which works out to a 24.9% annualized yield.
Scenario #2: MDT climbs over $92.50 by July 19
If MDT climbs over $92.50 by July 19, my 100 shares will get sold (“called away”) at $92.50 per share.
In “Scenario 2″ — like “Scenario 1″ — I get to keep the $310 in call income ($3.10 x 100 shares). I’ll also generate a $11.35 gain ($11.35 X 100) because I bought at $81.15 and will be selling at $92.50.
In this scenario, I’ll be looking at a $1,445 profit.
From a percentage standpoint, this high-yield trade will deliver an instant 3.8% yield for selling the call ($3.10 / $81.15) and a 14.0% capital gain ($11.35 / $81.15).
At the end of the day, I’m looking at a 17.8% total return in 56 days.
That works out to a 116.1% annualized yield from MDT.
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]