dividend increase 8, Apple Strategy Updated Oct 8, 2016

Apple closed at 114.06 on Friday, after having closed the previous week at 113.05. Three of our four AAPL strategies had in-the-money options at expiration so we bought them back and sold new options for the Oct 14 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
6.4%-6.4%
24%/year goalITM/ATM weekly covered calls
+ dividends
7.2%-5.6%
ATMATM weekly covered calls
+ dividends
0.5%-12.4%
2% OTM2% OTM weekly covered calls
+ dividends
2.2%-10.6%
buy and holddividends 12.8%

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
Q3 13 covered calls 7/1 to 9/30 46.31 31.45 5.29
9/30/16 sell 112-strike Oct 7 call 1.64 0.61

A few minutes before the close AAPL was trading at 114.06. We bought back the 112-strike and sold next week's 113-strike options to generate 57 cents of premium.

Date Action $ out $ in Time Premium
10/7/16 buy 112-strike Oct 7 call 2.07 -0.01
10/7/16 sell 113-strike Oct 14 call 1.63 0.57

Here's the math we used to determine the 113-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 -4.90 net call premium + paid divs
dividends yet to be paid 2016 0.57 1 x 0.57
assumed income received -4.33 net call premium + unpaid divs
current stock price 114.06 at the time we rolled
stock price + assumed income 109.73 114.06 - 4.33
income needed by Dec 31 5.15 114.88 - 109.73
weeks remaining 12 in 2016
income needed per week 0.43 5.15 / 12
2016 YTD return 6.4% (109.73 - 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 43 cents per week for the 12 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 43 cents of time premium was the 113-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
Q3 13 covered calls 7/1 to 9/30 30.41 16.95 11.61
9/30/16 sell 113-strike Oct 7 call 1.05 1.02

A few minutes before the close AAPL was trading at 114.06. We bought the 113-strike back and sold next week's 114-strike options to generate 96 cents of premium.

Date Action $ out $ in Time Premium
10/7/16 buy 113-strike Oct 7 call 1.07 -0.01
10/7/16 sell 114-strike Oct 14 call 1.02 0.96

Here's the math we used to determine the 114-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 -4.06 net call premium + paid divs
dividends yet to be paid 2016 0.57 1 x 0.57
assumed income received -3.49 net call premium + unpaid divs
current stock price 114.06 at the time we rolled
stock price + assumed income 110.57 114.06 - 3.49
income needed by Dec 31 16.62 127.19 - 110.57
weeks remaining 12 in 2016
income needed per week 1.38 16.62 / 12
2016 YTD return 7.2% (110.57 - 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 1.38 per week for the remaining 12 weeks in time premium. When examining the choices just before Friday's close we saw the 114-strike was offering 96 cents 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
Q3 13 covered calls 7/1 to 9/30 27.41 15.06 12.72
9/30/16 sell 113-strike Oct 7 call 1.05 1.02

A few minutes before the close AAPL was trading at 114.06. We bought the 113-strike back and sold next week's 114-strike options to generate 96 cents of premium.

Date Action $ out $ in Time Premium
10/7/16 buy 113-strike Oct 7 call 1.07 -0.01
10/7/16 sell 114-strike Oct 14 call 1.02 0.96

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received -11.01 net call premium + paid divs
current stock price 114.06 at the time we rolled
stock price + actual income 103.05 114.06 - 11.01
2016 YTD return 0.5% (103.05 - 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
Q3 13 covered calls 7/1 to 9/30 14.97 5.16 4.55
9/30/16 sell 115-strike Oct 7 call 0.33 0.33

A few minutes before the close AAPL was trading at 114.06. We let the 115-strike expire OTM and sold next week's 116-strike options to generate 32 cents of premium.

Date Action $ out $ in Time Premium
10/7/16 115-strike expired OTM 0.00
10/7/16 sell 116-strike Oct 14 call 0.32 0.32

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received -9.25 net call premium + paid divs
current stock price 114.06 at the time we rolled
stock price + actual income 104.81 114.06 - 9.25
2016 YTD return 2.2% (104.81 - 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 114.06 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 114.06
stock price + actual income 115.72 114.06 + 1.66
2016 YTD return 12.8% (115.72 - 102.57) / 102.57

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