dividend increase 28, Apple Strategy Updated Oct 28, 2016

Apple closed at 113.69 on Friday, after having closed the previous week at 116.60. One of our AAPL strategies had in-the-money options at expiration so we bought them back and sold new options for the Nov 4 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
8.0%-4.5%
24%/year goalITM/ATM weekly covered calls
+ dividends
8.6%-3.9%
ATMATM weekly covered calls
+ dividends
1.3%-11.2%
2% OTM2% OTM weekly covered calls
+ dividends
2.4%-10.1%
buy and holddividends 12.5%

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
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
10/21/16 buy 116-strike Oct 21 call 0.50 -0.01
10/21/16 sell 110-strike Oct 28 call 7.00 0.51

A few minutes before the close AAPL was trading at 113.73. We bought back the 110-strike and sold next week's 113-strike options to generate 63 cents of premium.

Date Action $ out $ in Time Premium
10/28/16 buy 110-strike Oct 28 call 3.74 -0.01
10/28/16 sell 113-strike Nov 4 call 1.36 0.63

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 -2.96 net call premium + paid divs
dividends yet to be paid 2016 0.57 1 x 0.57
assumed income received -2.39 net call premium + unpaid divs
current stock price 113.73 at the time we rolled
stock price + assumed income 111.34 113.73 - 2.39
income needed by Dec 31 3.54 114.88 - 111.34
weeks remaining 9 in 2016
income needed per week 0.39 3.54 / 9
2016 YTD return 8.0% (111.34 - 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 39 cents per week for the 9 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 39 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
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
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
10/21/16 118-strike expired OTM 0.00
10/21/16 sell 115-strike Oct 28 call 3.35 1.86

A few minutes before the close AAPL was trading at 113.73. We let the 115-strike expire worthless and sold next week's 114-strike options to generate 81 cents of premium.

Date Action $ out $ in Time Premium
10/28/16 115-strike expired OTM 0.00
10/28/16 sell 114-strike Nov 4 call 0.81 0.81

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 -2.32 net call premium + paid divs
dividends yet to be paid 2016 0.57 1 x 0.57
assumed income received -1.75 net call premium + unpaid divs
current stock price 113.73 at the time we rolled
stock price + assumed income 111.98 113.73 - 1.75
income needed by Dec 31 15.21 127.19 - 111.98
weeks remaining 9 in 2016
income needed per week 1.69 15.21 / 9
2016 YTD return 8.6% (111.98 - 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 1.69 per week for the remaining 9 weeks in time premium. When examining the choices just before Friday's close we saw the 114-strike was offering the highest time premium at 81 cents (below our goal but the best we can do right now).

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
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
10/21/16 118-strike expired OTM 0.00
10/21/16 sell 116-strike Oct 28 call 2.81 2.32

A few minutes before the close AAPL was trading at 113.73. We let the 116-strike expire worthless and sold next week's 114-strike options to generate 81 cents of premium.

Date Action $ out $ in Time Premium
10/28/16 116-strike expired OTM 0.00
10/28/16 sell 114-strike Nov 4 call 0.81 0.81

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received -9.81 net call premium + paid divs
current stock price 113.73 at the time we rolled
stock price + actual income 103.92 113.73 - 9.81
2016 YTD return 1.3% (103.92 - 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
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
10/21/16 120-strike expired OTM 0.00
10/21/16 sell 119-strike Oct 28 call 1.48 1.48

A few minutes before the close AAPL was trading at 113.73. We let the 119-strike expire worthless and sold next week's 116-strike options to generate 23 cents of premium.

Date Action $ out $ in Time Premium
10/28/16 119-strike expired OTM 0.00
10/28/16 sell 116-strike Nov 4 call 0.23 0.23

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received -8.73 net call premium + paid divs
current stock price 113.73 at the time we rolled
stock price + actual income 105.00 113.73 - 8.73
2016 YTD return 2.4% (105.00 - 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 116.49 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 113.73
stock price + actual income 115.39 113.73 + 1.66
2016 YTD return 12.5% (115.39 - 102.57) / 102.57

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