dividend increase 15, Apple Strategy Updated Oct 15, 2016

Apple closed at 117.60 on Friday, after having closed the previous week at 114.06. All of our AAPL strategies had in-the-money options at expiration so we bought them back and sold new options for the Oct 21 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
7.0%-9.3%
24%/year goalITM/ATM weekly covered calls
+ dividends
8.2%-8.1%
ATMATM weekly covered calls
+ dividends
1.4%-14.9%
2% OTM2% OTM weekly covered calls
+ dividends
4.4%-11.9%
buy and holddividends 16.3%

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
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

A few minutes before the close AAPL was trading at 117.60. We bought back the 113-strike and sold next week's 116-strike options to generate 56 cents of premium.

Date Action $ out $ in Time Premium
10/14/16 buy 113-strike Oct 14 call 4.61 -0.01
10/14/16 sell 116-strike Oct 21 call 2.16 0.56

Here's the math we used to determine the 116-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 -7.88 net call premium + paid divs
dividends yet to be paid 2016 0.57 1 x 0.57
assumed income received -7.31 net call premium + unpaid divs
current stock price 117.60 at the time we rolled
stock price + assumed income 110.29 117.60 - 7.31
income needed by Dec 31 4.59 114.88 - 110.29
weeks remaining 11 in 2016
income needed per week 0.42 4.59 / 11
2016 YTD return 7.0% (110.29 - 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 42 cents per week for the 11 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 42 cents of time premium was the 116-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
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

A few minutes before the close AAPL was trading at 117.60. We bought the 114-strike back and sold next week's 118-strike options to generate 98 cents of premium.

Date Action $ out $ in Time Premium
10/14/16 buy 114-strike Oct 14 call 3.61 -0.01
10/14/16 sell 118-strike Oct 21 call 0.98 0.98

Here's the math we used to determine the 118-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 -6.65 net call premium + paid divs
dividends yet to be paid 2016 0.57 1 x 0.57
assumed income received -6.08 net call premium + unpaid divs
current stock price 117.60 at the time we rolled
stock price + assumed income 111.52 117.60 - 6.08
income needed by Dec 31 15.67 127.19 - 111.52
weeks remaining 11 in 2016
income needed per week 1.42 15.67 / 11
2016 YTD return 8.2% (111.52 - 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 1.42 per week for the remaining 11 weeks in time premium. When examining the choices just before Friday's close we saw the 118-strike was offering 98 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
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

A few minutes before the close AAPL was trading at 117.60. We bought the 114-strike back and sold next week's 118-strike options to generate 98 cents of premium.

Date Action $ out $ in Time Premium
10/14/16 buy 114-strike Oct 14 call 3.61 -0.01
10/14/16 sell 118-strike Oct 21 call 0.98 0.98

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received -13.60 net call premium + paid divs
current stock price 117.60 at the time we rolled
stock price + actual income 104.00 117.60 - 13.60
2016 YTD return 1.4% (104.00 - 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
10/7/16 115-strike expired OTM 0.00
10/7/16 sell 116-strike Oct 14 call 0.32 0.32

A few minutes before the close AAPL was trading at 117.60. We bought the 116-strike back and sold next week's 120-strike options to generate 33 cents of premium.

Date Action $ out $ in Time Premium
10/14/16 buy 116-strike Oct 14 call 1.61 -0.01
10/14/16 sell 120-strike Oct 21 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 -10.54 net call premium + paid divs
current stock price 117.60 at the time we rolled
stock price + actual income 107.06 117.60 - 10.54
2016 YTD return 4.4% (107.06 - 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 117.60 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 117.60
stock price + actual income 119.26 117.60 + 1.66
2016 YTD return 16.3% (119.26 - 102.57) / 102.57

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