dividend increase 22, Apple Strategy Updated Jul 22, 2016

Apple closed at 98.66 on Friday, after having closed the previous week at 98.78. One of our AAPL strategies had an in-the-money option near expiration so we bought it back, and then sold new options for the July 29th expiration for 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
4.8%+7.6%
24%/year goalITM weekly covered calls
+ dividends
4.7%+7.5%
ATMATM weekly covered calls
+ dividends
-3.2%-0.4%
2% OTM2% OTM weekly covered calls
+ dividends
-3.5%-0.7%
buy and holddividends -2.8%

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
Q2 13 covered calls 4/1 to 7/1 35.62 49.81 3.87
7/1/16 sell 95-strike Jul 8 call 1.39 0.32
7/8/16 buy 95-strike Jul 8 call 1.63 -0.01
7/8/16 sell 95.50-strike Jul 15 call 1.48 0.36
7/15/16 buy 95.50-strike Jul 15 call 3.27 -0.01
7/15/16 sell 97.50-strike Jul 22 call 1.62 0.34

A few minutes before the close AAPL was trading at 98.57. We bought back the 97.50-strike and sold next week's 92.50-strike options to generate 33 cents of premium:

Date Action $ out $ in Time Premium
7/22/16 buy 97.50-strike Jul 22 call 1.08 -0.01
7/22/16 sell 92.50-strike Jul 29 call 6.40 0.33

Here's the math we used to determine the 92.50-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 8.90 net call premium + paid divs
dividends yet to be paid 2016 1.14 2 x 0.57
assumed income received 10.04 net call premium + unpaid divs
current stock price 98.57 at the time we rolled
stock price + assumed income 108.61 98.57 + 10.04
income needed by Dec 31 6.27 114.88 - 108.61
weeks remaining 23 in 2016
income needed per week 0.27 6.60 / 23
2016 YTD return 4.8% (108.61 - 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 27 cents per week for the 23 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 27 cents of time premium was the 92.50-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
Q2 13 covered calls 4/1 to 7/1 21.21 31.03 8.61
7/1/16 sell 96-strike Jul 8 call 0.74 0.67
7/8/16 buy 96-strike Jul 8 call 0.63 -0.01
7/8/16 sell 96.50-strike Jul 15 call 0.83 0.71
7/15/16 buy 96.50-strike Jul 15 call 2.27 -0.01
7/15/16 sell 99-strike Jul 22 call 0.70 0.70

A few minutes before the close AAPL was trading at 98.57. We let the 99-strike expire OTM and sold next week's 95.50-strike options to generate 83 cents of premium:

Date Action $ out $ in Time Premium
7/22/16 99-strike expired OTM 0.00
7/22/16 sell 95.50-strike Jul 29 call 3.90 0.83

Here's the math we used to determine the 95.50-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 8.79 net call premium + paid divs
dividends yet to be paid 2016 1.14 2 x 0.57
assumed income received 9.93 net call premium + unpaid divs
current stock price 98.57 at the time we rolled
stock price + assumed income 108.50 98.57 + 9.93
income needed by Dec 31 18.69 127.19 - 108.50
weeks remaining 23 in 2016
income needed per week 0.81 18.69 / 23
2016 YTD return 4.7% (108.50 - 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 81 cents per week for the remaining 23 weeks in time premium. When examining the choices just before Friday's close we saw the 95.50-strike was offering 83 cents of premium.

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
Q2 13 covered calls 4/1 to 7/1 14.15 16.53 15.10
7/1/16 sell 96-strike Jul 8 call 0.74 0.67
7/8/16 buy 96-stirke Jul 8 call 0.63 -0.01
7/8/16 sell 96.50-strike Jul 15 call 0.83 0.71
7/15/16 buy 96.50-stirke Jul 15 call 2.27 -0.01
7/15/16 sell 99-strike Jul 22 call 0.70 0.70

A few minutes before the close AAPL was trading at 98.57. We let the 99-strikes expire OTM and sold next week's 98.50-strike to generate 1.94 of premium (higher than usual because of earnings next week):

Date Action $ out $ in Time Premium
7/22/16 99-stirke expired OTM 0.00
7/22/16 sell 98.50-strike Jul 29 call 2.01 1.94

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received 0.73 net call premium + paid divs
current stock price 98.57 at the time we rolled
stock price + actual income 99.30 98.57 + 0.73
2016 YTD return -3.2% (99.30 - 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
Q2 13 covered calls 4/1 to 7/1 6.42 6.72 6.12
7/1/16 sell 98-strike Jul 8 call 0.11 0.11
7/8/16 98-strike expired OTM 0.00
7/8/16 sell 98.50-strike Jul 15 call 0.18 0.18
7/15/16 buy 98.50-strike Jul 15 call 0.27 -0.01
7/15/16 sell 101-strike Jul 22 call 0.15 0.15

A few minutes before the close AAPL was trading at 98.57. We let the 101-strikes expire OTM and sold next week's 101-strike options to generate 95 cents of premium:

Date Action $ out $ in Time Premium
7/22/16 101-strike expired OTM 0.00
7/22/16 sell 101-strike Jul 29 call 0.95 0.95

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received 0.40 net call premium + paid divs
current stock price 98.57 at the time we rolled
stock price + actual income 98.97 98.57 + 0.40
2016 YTD return -3.5% (98.97 - 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 98.78 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 98.57
stock price + actual income 99.66 98.57 + 1.09
2016 YTD return -2.8% (99.66 - 102.57) / 102.57

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