dividend increase 29, Apple Strategy Updated Jul 29, 2016

Apple closed at 104.19 on Friday, after having closed the previous week at 98.66. All of our AAPL strategies had in-the-money options near expiration so we bought them back, and then sold new options for the August 5th expiration.

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
5.1%+2.5%
24%/year goalITM weekly covered calls
+ dividends
5.5%+2.8%
ATMATM weekly covered calls
+ dividends
-1.3%-3.9%
2% OTM2% OTM weekly covered calls
+ dividends
-0.2%-2.9%
buy and holddividends 2.6%

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
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
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

A few minutes before the close AAPL was trading at 104.18. We bought back the 92.50-strike and sold next week's 103-strike options to generate 32 cents of premium:

Date Action $ out $ in Time Premium
7/29/16 buy 92.50-strike Jul 29 call 11.69 -0.01
7/29/16 sell 103-strike Aug 5 call 1.50 0.32

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 3.61 net call premium + paid divs
dividends yet to be paid 2016 1.14 2 x 0.57
assumed income received 4.75 net call premium + unpaid divs
current stock price 104.18 at the time we rolled
stock price + assumed income 108.93 104.18 + 4.75
income needed by Dec 31 5.95 114.88 - 108.93
weeks remaining 22 in 2016
income needed per week 0.27 5.95 / 22
2016 YTD return 5.1% (108.93 - 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 22 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 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
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
7/22/16 99-strike expired OTM 0.00
7/22/16 sell 95.50-strike Jul 29 call 3.90 0.83

A few minutes before the close AAPL was trading at 104.18. We bought back the 95.50-strike and sold next week's 104-strike options to generate 67 cents of premium (which is less than our goal of 81 cents but was the highest time premium available at the time):

Date Action $ out $ in Time Premium
7/29/16 buy 95.50-strike Jul 29 call 8.69 -0.01
7/29/16 sell 104-strike Aug 5 call 0.85 0.67

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 4.00 net call premium + paid divs
dividends yet to be paid 2016 1.14 2 x 0.57
assumed income received 5.14 net call premium + unpaid divs
current stock price 104.18 at the time we rolled
stock price + assumed income 109.32 104.18 + 5.14
income needed by Dec 31 17.87 127.19 - 109.32
weeks remaining 22 in 2016
income needed per week 0.81 17.87 / 22
2016 YTD return 5.5% (109.32 - 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 22 weeks in time premium. When examining the choices just before Friday's close we saw the 104-strike was offering 67 cents of premium, not enough to keep us on track for the year but the highest available at the time.

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
7/22/16 99-stirke expired OTM 0.00
7/22/16 sell 98.50-strike Jul 29 call 2.01 1.94

A few minutes before the close AAPL was trading at 104.18. We bought back the 98.50-strike and sold next week's 104-strike options to generate 67 cents of premium:

Date Action $ out $ in Time Premium
7/29/16 buy 98.50-strike Jul 29 call 5.69 -0.01
7/29/16 sell 104-strike Aug 5 call 0.85 0.67

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received -2.95 net call premium + paid divs
current stock price 104.18 at the time we rolled
stock price + actual income 101.23 104.18 - 2.95
2016 YTD return -1.3% (101.23 - 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 104.18. We bought back the 101-strike and sold next week's 106-strike options to generate 19 cents of premium:

Date Action $ out $ in Time Premium
7/29/16 buy 101-strike Jul 29 call 3.19 -0.01
7/29/16 sell 106-strike Aug 5 call 0.19 0.19

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received -1.84 net call premium + paid divs
current stock price 104.18 at the time we rolled
stock price + actual income 102.34 104.18 - 1.84
2016 YTD return -0.2% (102.34 - 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 104.18 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 104.18
stock price + actual income 105.27 104.18 + 1.09
2016 YTD return 2.6% (105.27 - 102.57) / 102.57

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