dividend increase 12, Apple Strategy Updated Feb 12, 2016

Apple closed at 93.99 this week, after having closed the previous week at 94.02. Two of our AAPL strategies had in-the-money options near the close and two had out-of-the-money options. Because the market is closed Monday and we wanted to capture as much time premium as possible, we sold new options for Feb 19 expiration on all 4 strategies.

To review, we are tracking 4 covered call strategies on Apple for 2016 (we are also tracking a buy-and-hold strategy for comparison):

Strategy Name Source of Income YTD Return vs. B&H
12%/year goalITM weekly covered calls
+ dividends
2.0%+9.9%
24%/year goalITM weekly covered calls
+ dividends
3.4%+11.3%
ATMATM weekly covered calls
+ dividends
-0.5%+7.4%
2% OTM2% OTM weekly covered calls
+ dividends
-3.8%+4.1%
buy and holddividends-7.9%

In all cases our initial purchase of AAPL was done at $102.57 on Jan 4, 2016. See the goals for the year and initial option sales here. (definitions for ITM, ATM, and OTM)

12%/year goal - Apple Strategy #1

Prior actions:

Date Action $ out $ in Time Premium
1/4/16 buy 100 shares AAPL 102.57
1/4/16 sell 95-strike Jan 8 call 7.80 0.23
1/8/16 buy 95-strike Jan 8 call 2.06 0.00
1/8/16 sell 89-strike Jan 15 call 8.35 0.29
1/15/16 buy 89-strike Jan 15 call 8.15 -0.03
1/15/16 sell 90-strike Jan 22 call 7.40 0.28
1/22/16 buy 90-strike Jan 22 call 11.30 -0.04
1/22/16 sell 90-strike Jan 29 call 11.60 0.34
1/29/16 buy 90-strike Jan 29 call 7.15 -0.02
1/29/16 sell 94.50-strike Feb 5 call 2.95 0.32
2/4/16 dividend 0.52
2/5/16 94.50-strike expired OTM 0.00
2/8/16 sell 89-strike Feb 12 call 5.65 0.23

About 10 minutes before the close AAPL was trading at 93.96 and we rolled the 89-strike options to next week's 90-strike to generate 24 cents of premium:

Date Action $ out $ in Time Premium
2/12/16 buy 89-strike Feb 12 call 4.98 -0.02
2/12/16 sell 90-strike Feb 19 call 4.20 0.24

Here's the math we used to determine the 90-strike was the right strike to keep us on track for 12%/year:

Item Value Notes
starting capital 102.57 Initial cost of shares
Dec 31 goal for 12% return 114.88 102.57 * 1.12
actual income received 10.63 net call premium + paid divs
dividends yet to be paid 2016 1.56 3 x 0.52
assumed income received 12.19 net call premium + unpaid divs
current stock price 93.96 at the time we rolled
stock price + assumed income 106.15 93.96 + 12.19
income needed by Dec 31 8.73 114.88 - 106.15
weeks remaining 46 in 2016
income needed per week 0.19 8.73 / 46
2016 YTD return 2.0% (106.15 - 1.56 - 102.57) / 102.57

With that, we knew that to get 12% return for the year (which includes unpaid, but expected, dividends) we need 19 cents per week for the 46 remaining weeks in time premium. When examining the choices just before Friday's close we saw the deepest in-the-money option we could sell that provided at least 19 cents of time premium was the 90-strike.

24%/year goal - Apple Strategy #2

Prior actions:

Date Action $ out $ in Time Premium
1/4/16 buy 100 shares AAPL 102.57
1/4/16 sell 98-strike Jan 8 call 5.03 0.46
1/8/16 98-strike expired OTM 0.00
1/11/16 sell 95-strike Jan 15 call 4.15 0.51
1/15/16 buy 95-strike Jan 15 call 2.15 -0.03
1/15/16 sell 93-strike Jan 22 call 4.65 0.53
1/22/16 buy 93-strike Jan 22 call 8.20 0.06
1/22/16 sell 92-strike Jan 29 call 9.75 0.49
1/29/16 buy 92-strike Jan 29 call 5.15 -0.02
1/29/16 sell 95-strike Feb 5 call 2.55 0.42
2/4/16 dividend 0.52
2/5/16 95-strike expired OTM 0.00
2/8/16 sell 91-strike Feb 12 call 3.90 0.48

About 10 minutes before the close today AAPL was trading at 93.96 and we rolled the 91-strike options to next week's 91.50-strike to generate 50 cents of premium:

Date Action $ out $ in Time Premium
2/12/16 buy 91-strike Feb 12 call 2.98 -0.02
2/12/16 sell 91.50-strike Feb 19 call 2.96 0.50

Here's the math we used to determine the 91.50-strike was the right strike to keep us on track for 24%/year:

Item Value Notes
starting capital 102.57 Initial cost of shares
Dec 31 goal for 24% return 127.19 102.57 * 1.24
actual income received 12.07 net call premium + paid divs
dividends yet to be paid 2016 1.56 3 x 0.52
assumed income received 13.63 net call premium + unpaid divs
current stock price 93.96 at the time we rolled
stock price + assumed income 107.59 93.96 + 13.63
income needed by Dec 31 19.60 127.19 - 107.59
weeks remaining 46 in 2016
income needed per week 0.43 19.60 / 46
2016 YTD return 3.4% (107.59 - 1.56 - 102.57) / 102.57

To stay on track for a 24% return for the year (which includes unpaid, but expected, dividends) we need 43 cents per week for the remaining 46 weeks in time premium. When examining the choices just before Friday's close we saw the deepest in-the-money option we could sell that provided at least 43 cents of time premium was the 91.50-strike.

ATM (at-the-money) - Apple Strategy #3

Prior actions:

Date Action $ out $ in Time Premium
1/4/16 buy 100 shares AAPL 102.57
1/4/16 sell 103-strike Jan 8 call 1.39 1.39
1/8/16 103-strike expired OTM 0.00
1/11/16 sell 98.50-strike Jan 15 call 1.65 1.51
1/15/16 98.50-strike expired OTM 0.00
1/18/16 sell 98-strike Jan 22 call 1.80 1.40
1/22/16 Buy 98-strike Jan 22 call 3.25 0.01
1/22/16 sell 101-strike Jan 29 call 3.25 2.99
1/29/16 101-strike expired OTM 0.00
2/1/16 sell 96-strike Feb 5 call 1.18 1.08
2/4/16 dividend 0.52
2/5/16 96-strike expired OTM 0.00
2/8/16 sell 94.50-strike Feb 12 call 1.53 1.53

The 94.50-strike options will expire worthless (OTM) today so we wrote new options (ATM) when AAPL was trading at 93.96. Normally we'd wait until Monday morning to do this but since the market is closed Monday we decided to do it today:

Date Action $ out $ in Time Premium
2/12/16 94.50-strike expired OTM 0.00
2/12/16 sell 94-strike Feb 19 call 1.30 1.30

At the time we rolled, this strategy's summary was:

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received 8.07 net call premium + paid divs
current stock price 93.96 at the time we rolled
stock price + actual income 102.03 93.96 + 8.07
2016 YTD return -0.5% (102.03 - 102.57) / 102.57

This strategy is simple to implement and track. Each Friday we either let the option expire (if OTM) and wait until the following Monday morning to write a new option, or buy the option back (if ITM) and then sell another option right away. The reason we treat OTM and ITM slightly differently is to optimize for transaction costs -- rather than buy back the OTM option for 5 cents at the close on Friday we just let it expire. (Although, as previously mentioned because of Monday's market holiday, today we took a little risk by letting the 94.50s expire OTM while at the same time writing new 94-strikes for next Friday.)

2% OTM (out-of-the-money) - Apple Strategy #4

Prior actions:

Date Action $ out $ in Time Premium
1/4/16 buy 100 shares AAPL 102.57
1/4/16 sell 105-strike Jan 8 call 0.60 0.60
1/8/16 105-strike expired OTM 0.00
1/11/16 sell 101-strike Jan 15 call 0.61 0.61
1/15/16 101-strike expired OTM 0.00
1/19/16 sell 100-strike Jan 22 call 0.84 0.84
1/22/16 buy 100-strike Jan 22 call 1.30 -0.04
1/22/16 sell 103-strike Jan 29 call 2.34 2.34
1/29/16 103-strike expired OTM 0.00
2/1/16 sell 98-strike Feb 5 call 0.42 0.42
2/4/16 dividend 0.52
2/5/16 98-strike expired OTM 0.00
2/8/16 sell 96.50-strike Feb 12 call 0.70 0.70

The 96.50-strike options will expire worthless (OTM) today so we wrote new options (2% OTM) when AAPL was trading at 93.96. Normally we'd wait until Monday morning to do this but since the market is closed Monday we decided to do it today:

Date Action $ out $ in Time Premium
2/12/16 96.50-strike expired OTM 0.00
2/12/16 sell 96-strike Feb 19 call 0.50 0.50

At the time we rolled, this strategy's summary was:

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received 4.73 net call premium + paid divs
current stock price 93.96 at the time we rolled
stock price + actual income 98.69 93.96 + 4.73
2016 YTD return -3.8% (98.69 - 102.57) / 102.57

This strategy is also simple to implement and track. Each Friday we either let the option expire (if OTM) and wait until the following Monday morning to write a new option, or buy the option back (if ITM) and then sell another option right away. (Although, as previously mentioned because of Monday's market holiday, today we took a little risk by letting the 96.50s expire OTM while at the same time writing new 96-strikes for next Friday.)

Buy and Hold (For Comparison)

Prior actions:

Date Action $ out $ in Time Premium
1/4/16 buy 100 shares AAPL 102.57
2/4/16 dividend 0.52

This strategy's summary when AAPL was trading at 93.96 near the close today:

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received 0.52 paid dividends
current stock price 93.96
stock price + actual income 94.48 93.96 + 0.52
2016 YTD return -7.9% (93.96 - 102.57) / 102.57

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