Weekly Apple (AAPL) Trade January 2

by Mike Scanlin

On December 5, 2012, we initiated a covered call on AAPL. The in-the-money weekly options we sold expired out of the money. We then sold 2 more weeklys on the same stock position, both of which expired out of the money. Today AAPL is up 3% along with the broader market (due to passage of the cliff-avoidance bill), and it's time to sell another weekly on our position.

Here is a recap of what we've done to date (see prior blog articles). We purchased AAPL at 551.57 on Dec 5. There were 2 strikes suggested, a 535 and 540, so we have to track two separate trades.

If you wrote the 535s on Dec 5, this is where you are today:

If you wrote the 540s on Dec 5, this is where you are today:

This morning AAPL is 552.68 and your adjusted cost basis is either 512.97 (if you started with 535s) or 521.37 (if you started with 540s). You could just sell the stock today and book your profits, or you could continue the trade with another 3-day in-the-money covered call.

If you choose to write another call, we suggest these 2 as a good compromise between protecting existing profits and getting a little extra premium over the next 3 days, with a goal of having the stock called away this Friday. The 540 strike would be for people who started on Dec 5 with the 535s, and the 545 strike for those who started on Dec 5 with the 540s:

If AAPL stays above the strike you choose by this Friday then your stock will be called away and you make the Annualized Return shown over a 30 day period (Dec 5 to Jan 4).

If you are not assigned on Friday (i.e. AAPL is below the strike you choose) then you own AAPL at the adjusted net debit shown and can write another option for the next cycle. Your adjusted cost basis (i.e. break even point) is the Adjusted Net Debit.

Mike Scanlin is the founder of Born To Sell and has been writing covered calls for a long time.

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