dividend increase 2, Apple Strategy Updated Oct 2, 2016

Apple closed at 113.05 on Friday, after having closed the previous week at 112.71. One of our four AAPL strategies had an in-the-money option at expiration so we bought it back and sold new options for the Oct 7 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
5.8%-6.0%
24%/year goalITM/ATM weekly covered calls
+ dividends
6.3%-5.6%
ATMATM weekly covered calls
+ dividends
-0.5%-12.3%
2% OTM2% OTM weekly covered calls
+ dividends
0.9%-11.0%
buy and holddividends 11.8%

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
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
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
8/4/16 dividend 0.57
8/5/16 buy 103-strike Aug 5 call 4.50 -0.01
8/5/16 sell 106-strike Aug 12 call 1.92 0.43
8/12/16 buy 106-strike Aug 12 call 2.16 -0.01
8/12/16 sell 107-strike Aug 19 call 1.58 0.43
8/19/16 buy 107-strike Aug 19 call 2.39 -0.01
8/19/16 sell 108-strike Aug 26 call 1.75 0.37
8/26/16 108-strike expired OTM 0.00
8/26/16 sell 105-strike Sep 2 call 2.33 0.39
9/2/16 buy 105-strike Sep 2 call 2.72 -0.01
9/2/16 sell 106-strike Sep 9 call 2.19 0.48
9/9/16 106-strike expired OTM 0.00
9/9/16 sell 101-strike Sep 16 call 2.82 0.54
9/16/16 buy 101-strike Sep 16 call 14.01 -0.01
9/16/16 sell 112-strike Sep 23 call 3.45 0.45
9/23/16 buy 112-strike Sep 23 call 0.82 -0.01
9/23/16 sell 111-strike Sep 30 call 2.45 0.64

A few minutes before the close AAPL was trading at 113.03. We bought back the 111-strike and sold next week's 112-strike options to generate 61 cents of premium.

Date Action $ out $ in Time Premium
9/30/16 buy 113-strike Sep 30 call 2.04 -0.01
9/30/16 sell 112-strike Oct 7 call 1.64 0.61

Here's the math we used to determine the 112-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 -4.47 net call premium + paid divs
dividends yet to be paid 2016 0.57 1 x 0.57
assumed income received -3.90 net call premium + unpaid divs
current stock price 113.03 at the time we rolled
stock price + assumed income 109.13 113.03 - 3.90
income needed by Dec 31 5.75 114.88 - 109.13
weeks remaining 13 in 2016
income needed per week 0.44 5.75 / 13
2016 YTD return 5.8% (109.13 - 0.57 - 102.57) / 102.57

With that, we knew that to get 12% return for the year (which includes unpaid, but expected, dividends) we need 44 cents per week for the 13 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 44 cents of time premium was the 112-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
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
8/4/16 dividend 0.57
8/5/16 buy 104-strike Aug 5 call 3.50 -0.01
8/5/16 sell 107-strike Aug 12 call 1.25 0.76
8/12/16 buy 107-strike Aug 12 call 1.16 -0.01
8/12/16 sell 108-strike Aug 19 call 0.94 0.79
8/19/16 buy 108-strike Aug 19 call 1.39 -0.01
8/19/16 sell 109-strike Aug 26 call 1.06 0.68
8/26/16 109-strike expired OTM 0.00
8/26/16 sell 107-strike Sep 2 call 1.00 1.06
9/2/16 buy 107-strike Sep 2 call 0.72 -0.01
9/2/16 sell 108-strike Sep 9 call 0.98 0.98
9/9/16 108-strike expired OTM 0.00
9/9/16 sell 103-strike Sep 16 call 1.43 1.15
9/16/16 buy 103-strike Sep 16 call 12.01 -0.01
9/16/16 sell 115-strike Sep 23 call 1.47 1.47
9/23/16 115-strike expired OTM 0.00
9/23/16 sell 113-strike Sep 30 call 1.23 1.23

A few minutes before the close AAPL was trading at 113.03. We bought the 113-strike back and sold next week's 113-strike options to generate 1.02 of premium.

Date Action $ out $ in Time Premium
9/30/16 buy 113-strike Sep 30 call 0.04 -0.01
9/30/16 sell 113-strike Oct 7 call 1.05 1.02

Here's the math we used to determine the 113-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 -4.04 net call premium + paid divs
dividends yet to be paid 2016 0.57 1 x 0.57
assumed income received -3.47 net call premium + unpaid divs
current stock price 113.03 at the time we rolled
stock price + assumed income 109.56 113.03 - 3.47
income needed by Dec 31 17.63 127.19 - 109.56
weeks remaining 13 in 2016
income needed per week 1.36 17.63 / 13
2016 YTD return 6.3% (109.56 - 0.57 - 102.57) / 102.57

To stay on track for a 24% return for the year (which includes unpaid, but expected, dividends) we need 1.36 per week for the remaining 13 weeks in time premium. When examining the choices just before Friday's close we saw the 113-strike was offering 1.02 of premium (below our goal, but the best 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
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
8/4/16 dividend 0.57
8/5/16 buy 104-strike Aug 5 call 3.50 -0.01
8/5/16 sell 107-strike Aug 12 call 1.25 0.76
8/12/16 buy 107-strike Aug 12 call 1.16 -0.01
8/12/16 sell 108-strike Aug 19 call 0.94 0.79
8/19/16 buy 108-strike Aug 19 call 1.39 -0.01
8/19/16 sell 109-strike Aug 26 call 1.06 0.68
8/26/16 109-strike expired OTM 0.00
8/26/16 sell 107-strike Sep 2 call 1.00 1.06
9/2/16 buy 107-strike Sep 2 call 0.72 -0.01
9/2/16 sell 108-strike Sep 9 call 0.98 0.98
9/9/16 108-strike expired OTM 0.00
9/9/16 sell 103-strike Sep 16 call 1.43 1.15
9/16/16 buy 103-strike Sep 16 call 12.01 -0.01
9/16/16 sell 115-strike Sep 23 call 1.47 1.47
9/23/16 115-strike expired OTM 0.00
9/23/16 sell 113-strike Sep 30 call 1.23 1.23

A few minutes before the close AAPL was trading at 113.03. We bought the 113-strike back and sold next week's 113-strike options to generate 1.02 of premium.

Date Action $ out $ in Time Premium
9/30/16 buy 113-strike Sep 30 call 0.04 -0.01
9/30/16 sell 113-strike Oct 7 call 1.05 1.02

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received -10.99 net call premium + paid divs
current stock price 113.03 at the time we rolled
stock price + actual income 102.04 112.81 - 10.99
2016 YTD return -0.5% (102.04 - 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
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
8/4/16 dividend 0.57
8/5/16 buy 106-strike Aug 5 call 1.50 -0.01
8/5/16 sell 110-strike Aug 12 call 0.23 0.23
8/12/16 110-strike expired OTM 0.00
8/12/16 sell 110-strike Aug 19 call 0.24 0.24
8/19/16 110-strike expired OTM 0.00
8/19/16 sell 112-strike Aug 26 call 0.13 0.13
8/26/16 112-strike expired OTM 0.00
8/26/16 sell 109-strike Sep 2 call 0.31 0.31
9/2/16 109-strike expired OTM 0.00
9/2/16 sell 110-strike Sep 9 call 0.33 0.33
9/9/16 110-strike expired OTM 0.00
9/9/16 sell 105-strike Sep 16 call 0.56 0.56
9/16/16 buy 105-strike Sep 16 call 10.01 -0.01
9/16/16 sell 117-strike Sep 23 call 0.71 0.71
9/23/16 117-strike expired OTM 0.00
9/23/16 sell 115-strike Sep 30 call 0.50 0.50

A few minutes before the close AAPL was trading at 113.03. We let the 115-strike expire OTM and sold next week's 115-strike options to generate 33 cents of premium.

Date Action $ out $ in Time Premium
9/30/16 115-strike expired OTM 0.00
9/30/16 sell 115-strike Oct 7 call 0.33 0.33

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received -9.58 net call premium + paid divs
current stock price 113.03 at the time we rolled
stock price + actual income 103.45 113.03 - 9.58
2016 YTD return 0.9% (103.45 - 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
8/4/16 dividend 0.57

This strategy's summary when AAPL was trading at 113.03 near the close Friday:

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received 1.66 paid dividends
current stock price 113.03
stock price + actual income 114.69 113.03 + 1.66
2016 YTD return 11.8% (114.69 - 102.57) / 102.57

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