dividend increase 26, Apple Strategy Updated Mar 26, 2016

Apple closed at 105.68 on Thursday (short week due to Good Friday), after having closed the previous week at 105.92. Two of our AAPL strategies had in-the-money options near the close so we bought them back and sold new options for the Apr 1 expiration. We also rolled two strategies that had out of the money options expiring on Thursday.

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
3.3%-0.3%
24%/year goalITM weekly covered calls
+ dividends
6.4%+2.8%
ATMATM weekly covered calls
+ dividends
5.1%+1.5%
2% OTM2% OTM weekly covered calls
+ dividends
4.6%+1.1%
buy and holddividends 3.5%

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
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
2/19/16 buy 90-strike Feb 19 call 6.10 -0.05
2/19/16 sell 91.50-strike Feb 26 call 4.80 0.25
2/26/16 buy 91.50-strike Feb 26 call 5.53 -0.03
2/26/16 sell 93-strike Mar 4 call 4.25 0.25
3/4/16 buy 93-strike Mar 4 call 10.00 -0.04
3/4/16 sell 100-strike Mar 11 call 3.25 0.29
3/11/16 buy 100-strike Mar 11 call 2.22 -0.02
3/11/16 sell 99.50-strike Mar 18 call 2.95 0.25
3/18/16 buy 99.50-strike Mar 18 call 6.40 -0.02
3/18/16 sell 102-strike Mar 24 call 4.10 0.22

Just before the close AAPL was trading at 105.68 and we rolled the 102-strike options to next week's 103-strike to generate 24 cents of premium:

Date Action $ out $ in Time Premium
3/24/16 buy 102-strike Mar 24 call 3.70 -0.02
3/24/16 sell 103-strike Apr 1 call 2.92 0.24

Here's the math we used to determine the 103-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 0.23 net call premium + paid divs
dividends yet to be paid 2016 1.56 3 x 0.52
assumed income received 1.79 net call premium + unpaid divs
current stock price 105.68 at the time we rolled
stock price + assumed income 107.47 105.68 + 1.79
income needed by Dec 31 7.41 114.88 - 107.47
weeks remaining 40 in 2016
income needed per week 0.19 7.41 / 40
2016 YTD return 3.3% (107.47 - 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 40 remaining weeks in time premium. When examining the choices just before Thursday's close we saw the deepest in-the-money option we could sell that provided at least 19 cents of time premium was the 103-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
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
2/19/16 buy 91.50-strike Feb 19 call 4.60 -0.05
2/19/16 sell 93.50-strike Feb 26 call 3.00 0.45
2/26/16 buy 93.50-strike Feb 26 call 3.52 -0.02
2/26/16 sell 95-strike Mar 4 call 2.50 0.50
3/4/16 buy 95-strike Mar 4 call 8.00 -0.04
3/4/16 sell 102-strike Mar 11 call 1.70 0.74
3/11/16 buy 102-strike Mar 11 call 0.22 -0.02
3/11/16 sell 101-strike Mar 18 call 1.77 0.57
3/18/16 buy 101-strike Mar 18 call 4.90 -0.02
3/18/16 sell 104-strike Mar 24 call 2.36 0.48

Just before the close today AAPL was trading at 105.68 and we rolled the 104-strike options to next week's 104-strike to generate 44 cents of premium:

Date Action $ out $ in Time Premium
3/24/16 buy 104-strike Mar 24 call 1.69 -0.01
3/24/16 sell 104-strike Apr 1 call 2.12 0.44

Here's the math we used to determine the 104-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 3.43 net call premium + paid divs
dividends yet to be paid 2016 1.56 3 x 0.52
assumed income received 4.99 net call premium + unpaid divs
current stock price 105.68 at the time we rolled
stock price + assumed income 110.67 105.68 + 4.99
income needed by Dec 31 16.52 127.19 - 110.67
weeks remaining 40 in 2016
income needed per week 0.41 16.52 / 40
2016 YTD return 6.4% (110.67 - 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 41 cents per week for the remaining 40 weeks in time premium. When examining the choices just before Thursday's close we saw the deepest in-the-money option we could sell that provided at least 41 cents of time premium was the 104-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
2/12/16 94.50-strike expired OTM 0.00
2/12/16 sell 94-strike Feb 19 call 1.30 1.30
2/19/16 buy 94-strike Feb 19 call 2.06 -0.01
2/19/16 sell 96-strike Feb 26 call 1.25 1.20
2/26/16 buy 96-strike Feb 26 call 1.02 -0.02
2/26/16 sell 97-strike Mar 4 call 1.13 1.13
3/4/16 buy 97-strike Mar 4 call 6.00 -0.04
3/4/16 sell 103-strike Mar 11 call 1.10 1.10
3/11/16 103-strike expired OTM 0.00
3/11/16 sell 102-strike Mar 18 call 1.14 0.94
3/18/16 buy 102-strike Mar 18 call 3.90 -0.02
3/18/16 sell 106-strike Mar 18 call 1.08 1.08

Just before the close today AAPL was trading at 105.68 so we assumed the 106-strike would expire worthless and sold next week's 106-strike to generate $0.84 of premium:

Date Action $ out $ in Time Premium
3/24/16 106-strike expired OTM 0.00
3/24/16 sell 106-strike Apr 1 call 0.84 0.84

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received 2.09 net call premium + paid divs
current stock price 105.68 at the time we rolled
stock price + actual income 107.77 105.68 + 2.09
2016 YTD return 5.1% (107.77 - 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.

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
2/12/16 96.50-strike expired OTM 0.00
2/12/16 sell 96-strike Feb 19 call 0.50 0.50
2/26/16 98-strike expired OTM 0.00
2/29/16 sell 99.50-strike Mar 4 call 0.28 0.28
3/4/16 Buy 99.50-strike Mar 4 call 3.50 -0.04
3/4/16 sell 105-strike Mar 11 call 0.38 0.38
3/11/16 105-strike expired OTM 0.00
3/11/16 sell 104-strike Mar 18 call 0.38 0.38
3/18/16 buy 104-strike Mar 18 call 1.89 -0.01
3/18/16 sell 108-strike Mar 24 call 0.41 0.41

Just before the close today AAPL was trading at 105.68 so we assumed the 108-strike would expire worthless and sold next week's 108-strike to generate $0.23 of premium:

Date Action $ out $ in Time Premium
3/24/16 108-strike expired OTM 0.00
3/24/16 sell 108-strike Apr 1 call 0.23 0.23

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received 1.65 net call premium + paid divs
current stock price 105.68 at the time we rolled
stock price + actual income 107.33 105.68 + 1.65
2016 YTD return 4.6% (107.33 - 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.

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 105.68 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 105.68
stock price + actual income 106.20 105.68 + 0.52
2016 YTD return 3.5% (106.20 - 102.57) / 102.57

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