dividend increase 24, Apple Strategy Updated Jun 24, 2016

Apple closed at 93.40 on Friday, after having closed the previous week at 95.33. Three of our four AAPL strategies had out-of-the-money options near expiration so we let them expire and sold new options for the July 1st expiration next Friday.

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
3.5%+11.1%
24%/year goalITM weekly covered calls
+ dividends
2.0%+9.6%
ATMATM weekly covered calls
+ dividends
-6.2%+1.4%
2% OTM2% OTM weekly covered calls
+ dividends
-8.4%-0.8%
buy and holddividends -7.6%

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
Q1 13 covered calls 1/4 to 4/1 74.54 70.74 3.13
4/1/16 sell 107-strike Apr 8 call 3.20 0.26
4/8/16 buy 107-strike Apr 8 call 1.56 -0.01
4/8/16 sell 104-strike Apr 15 call 4.80 0.25
4/15/16 buy 104-strike Apr 15 call 5.85 -0.02
4/15/16 sell 105-strike Apr 22 call 5.05 0.22
4/22/16 buy 105-strike Apr 22 call 0.65 0.00
4/22/16 sell 97-strike Apr 29 call 8.90 0.25
4/29/16 97-strike expired OTM 0.00
4/29/16 sell 91.50-strike May 6 call 2.76 0.38
5/5/16 dividend 0.57
5/6/16 buy 91.50-strike May 6 call 1.10 0.00
5/6/16 sell 90-strike May 13 call 2.92 0.32
5/13/16 buy 90-strike May 13 call 0.48 -0.01
5/13/16 sell 87.50-strike May 20 call 3.32 0.35
5/20/16 buy 87.50-strike May 20 call 7.60 -0.01
5/20/16 sell 93-strike May 27 call 2.43 0.34
5/27/16 buy 93-strike May 27 call 7.25 -0.02
5/27/16 sell 98-strike Jun 3 call 2.55 0.32
6/3/16 98-strike expired OTM 0.00
6/3/16 sell 96-strike Jun 10 call 2.20 0.29
6/10/16 buy 96-strike Jun 10 call 2.87 -0.01
6/10/16 sell 96.50-strike Jun 17 call 2.68 0.32
6/17/16 96.50-strike expired OTM 0.00
6/17/16 sell 92-strike Jun 24 call 3.93 0.34

A few minutes before the close AAPL was trading at 93.68. We bought back the 92-strike and sold next week's 89.50-strike options to generate 32 cents of premium:

Date Action $ out $ in Time Premium
6/24/16 buy 92-strike Jun 24 call 1.68 0.00
6/24/16 sell 89.50-strike Jul 1 call 4.50 0.32

Here's the math we used to determine the 89.50-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 12.47 net call premium + paid divs
dividends yet to be paid 2016 1.14 2 x 0.57
assumed income received 13.61 net call premium + unpaid divs
current stock price 93.68 at the time we rolled
stock price + assumed income 107.29 93.68 + 13.61
income needed by Dec 31 7.59 114.88 - 107.29
weeks remaining 27 in 2016
income needed per week 0.28 7.59 / 27
2016 YTD return 3.5% (107.29 - 1.14 - 102.57) / 102.57

With that, we knew that to get 12% return for the year (which includes unpaid, but expected, dividends) we need 28 cents per week for the 27 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 28 cents of time premium was the 89.50-strike.

24%/year goal - Apple Strategy #2

Prior actions:

Date Action $ out $ in Time Premium
1/4/16 buy 100 shares AAPL 102.57
Q1 13 covered calls 1/4 to 4/1 47.36 46.96 6.39
4/1/16 sell 108-strike Apr 8 call 2.38 0.44
4/8/16 buy 108-strike Apr 8 call 0.56 -0.01
4/8/16 sell 106-strike Apr 15 call 3.00 0.45
4/15/16 buy 106-strike Apr 15 call 3.85 -0.02
4/15/16 sell 107-strike Apr 22 call 3.25 0.42
4/22/16 107-strike expired OTM 0.00
4/22/16 sell 99.50-strike Apr 29 call 6.65 0.50
4/29/16 99.50-strike expired OTM 0.00
4/29/16 sell 93-strike May 6 call 1.68 0.80
5/5/16 dividend 0.57
5/6/16 93-strike expired OTM 0.00
5/6/16 sell 91.50-strike May 13 call 1.85 0.75
5/13/16 91.50-strike expired OTM 0.00
5/13/16 sell 89-strike May 20 call 2.15 0.68
5/20/16 buy 89-strike May 20 call 6.10 -0.01
5/20/16 sell 94.50-strike May 27 call 1.33 0.74
5/27/16 buy 94.50-strike May 27 call 5.75 -0.02
5/27/16 sell 99.50-strike Jun 3 call 1.45 0.72
6/3/16 99.50-strike expired OTM 0.00
6/3/16 sell 97.50-strike Jun 10 call 1.14 0.74
6/10/16 buy 97.50-strike Jun 10 call 1.37 -0.01
6/10/16 sell 98-strike Jun 17 call 1.55 0.69
6/17/16 98-strike expired OTM 0.00
6/17/16 sell 94.50-strike Jun 24 call 1.98 0.89

A few minutes before the close AAPL was trading at 93.68. We let the 94.50-strikes expire OTM and sold next week's 92.50-strike options to generate 87 cents of premium:

Date Action $ out $ in Time Premium
6/24/16 94.50-strike expired OTM 0.00
6/24/16 sell 92.50-strike Jul 1 call 2.05 0.87

Here's the math we used to determine the 92.50-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 10.95 net call premium + paid divs
dividends yet to be paid 2016 1.14 2 x 0.57
assumed income received 12.09 net call premium + unpaid divs
current stock price 93.68 at the time we rolled
stock price + assumed income 105.77 93.68 + 12.09
income needed by Dec 31 21.42 127.19 - 105.77
weeks remaining 27 in 2016
income needed per week 0.79 21.42 / 27
2016 YTD return 2.0% (105.77 - 1.14 - 102.57) / 102.57

To stay on track for a 24% return for the year (which includes unpaid, but expected, dividends) we need 79 cents per week for the remaining 27 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 79 cents of time premium was the 92.50-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
Q1 13 covered calls 1/4 to 4/1 20.18 19.16 17.40
4/1/16 sell 110-strike Apr 8 call 1.04 1.04
4/8/16 110-strike expired OTM 0.00
4/8/16 sell 109-strike Apr 15 call 1.08 1.08
4/15/16 buy 109-strike Apr 15 call 0.85 -0.02
4/15/16 sell 110-strike Apr 22 call 1.21 1.21
4/22/16 110-strike expired OTM 0.00
4/22/16 sell 106-strike Apr 29 call 2.26 2.26
4/29/16 106-strike expired OTM 0.00
4/29/16 sell 94-strike May 6 call 1.13 1.13
5/5/16 dividend 0.57
5/6/16 94-strike expired OTM 0.00
5/6/16 sell 92.50-strike May 13 call 1.25 1.05
5/13/16 92.50-strike expired OTM 0.00
5/13/16 sell 90.50-strike May 20 call 1.22 1.22
5/20/16 buy 90.50-strike May 20 call 4.60 -0.01
5/20/16 sell 95-strike May 27 call 1.04 0.95
5/27/16 buy 95-strike May 20 call 5.25 -0.02
5/27/16 sell 100-strike Jun 3 call 1.13 0.90
6/3/16 100-strike expired OTM 0.00
6/3/16 sell 98-strike Jun 10 call 0.86 0.86
6/10/16 buy 98-strike Jun 10 call 0.87 -0.01
6/10/16 sell 99-strike Jun 17 call 0.98 0.98
6/17/16 99-strike expired OTM 0.00
6/17/16 sell 95.50-strike Jun 24 call 1.34 1.25

A few minutes before the close AAPL was trading at 93.68. We let the 95.50-strikes expire OTM and sold next week's 93.50-strike options to generate 1.24 of premium:

Date Action $ out $ in Time Premium
6/24/16 95.50-strike expired OTM 0.00
6/24/16 sell 93.50-strike Jul 1 call 1.42 1.24

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received 2.52 net call premium + paid divs
current stock price 93.68 at the time we rolled
stock price + actual income 96.20 93.68 + 2.52
2016 YTD return -6.2% (96.20 - 102.57) / 102.57

This strategy is simple to implement and track. Each Friday we either let the option expire (if OTM) and write a new option, or buy the option back (if ITM) and then sell another option right away.

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
Q1 13 covered calls 1/4 to 4/1 8.74 8.67 8.00
4/1/16 sell 112-strike Apr 8 call 0.35 0.35
4/8/16 112-strike expired OTM 0.00
4/8/16 sell 111-strike Apr 15 call 0.42 0.42
4/15/16 111-strike expired OTM 0.00
4/15/16 sell 112-strike Apr 22 call 0.45 0.45
4/22/16 112-strike expired OTM 0.00
4/22/16 sell 108-strike Apr 29 call 1.39 1.39
4/29/16 108-strike expired OTM 0.00
4/29/16 sell 96-strike May 6 call 0.43 0.43
5/5/16 dividend 0.57
5/6/16 96-strike expired OTM 0.00
5/6/16 sell 94.50-strike May 13 call 0.45 0.45
5/13/16 94.50-strike expired OTM 0.00
5/13/16 sell 92.50-strike May 20 call 0.45 0.45
5/20/16 buy 92.50-strike May 20 call 2.60 -0.01
5/20/16 sell 97-strike May 27 call 0.29 0.29
5/27/16 buy 97-strike May 27 call 3.25 -0.02
5/27/16 sell 102-strike Jun 3 call 0.37 0.37
6/3/16 102-strike expired OTM 0.00
6/3/16 sell 100-strike Jun 10 call 0.22 0.22
6/10/16 100-strike expired OTM 0.00
6/10/16 sell 101-strike Jun 17 call 0.31 0.31
6/17/16 101-strike expired OTM 0.00
6/17/16 sell 97.50-strike Jun 24 call 0.50 0.50

A few minutes before the close AAPL was trading at 93.68. We let the 97.50-strikes expire OTM and sold next week's 95.50-strike options to generate 52 cents of premium:

Date Action $ out $ in Time Premium
6/24/16 97.50-strike expired OTM 0.00
6/24/16 sell 95.50-strike Jul 1 call 0.52 0.52

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received 0.28 net call premium + paid divs
current stock price 93.68 at the time we rolled
stock price + actual income 93.96 93.68 + 0.28
2016 YTD return -8.4% (93.96 - 102.57) / 102.57

This strategy is also simple to implement and track. Each Friday we either let the option expire (if OTM) and 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
5/5/16 dividend 0.57

This strategy's summary when AAPL was trading at 93.68 near the close Friday:

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received 1.09 paid dividends
current stock price 93.68
stock price + actual income 94.77 93.68 + 1.09
2016 YTD return -7.6% (94.77 - 102.57) / 102.57

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