Apple Strategy Updated Nov 11, 2016

by Mike Scanlin

Apple closed at 108.43 on Friday, after having closed the previous week at 108.84. Three of our AAPL strategies had out-of-the-money options at expiration so we let them expire and sold new options for the Nov 18 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 goal	ITM weekly covered calls + dividends	6.3%	-1.7%
24%/year goal	ITM/ATM weekly covered calls + dividends	6.8%	-1.2%
ATM	ATM weekly covered calls + dividends	-0.5%	-8.5%
2% OTM	2% OTM weekly covered calls + dividends	-1.0%	-8.9%
buy and hold	dividends	7.9%

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
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
11/3/16	dividend		0.57
11/4/16	113-strike expired OTM	0.00
11/4/16	sell 106-strike Nov 11 call		4.05	1.05

A few minutes before the close AAPL was trading at 108.48. We bought back the 106-strike options and sold next week's 108-strike options to generate 1.14 of premium.

Date	Action	$ out	$ in	Time Premium
11/11/16	buy 106-strike Nov 11 call	2.49		-0.01
11/11/16	sell 108-strike Nov 18 call		1.62	1.14

Here's the math we used to determine the 108-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	0.53	net call premium + paid divs
dividends yet to be paid 2016	0.00
assumed income received	0.53	net call premium + unpaid divs
current stock price	108.48	at the time we rolled
stock price + assumed income	109.01	108.48 + 0.53
income needed by Dec 31	5.87	114.88 - 109.01
weeks remaining	7	in 2016
income needed per week	0.84	5.87 / 7
2016 YTD return	6.3%	(109.01 - 102.57) / 102.57

With that, we knew that to get 12% return for the year (which includes unpaid, but expected, dividends) we need 84 cents per week for the 7 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 84 cents of time premium was the 108-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
10/28/16	115-strike expired OTM	0.00
10/28/16	sell 114-strike Nov 4 call		0.81	0.81
11/3/16	dividend		0.57
11/4/16	114-strike expired OTM	0.00
11/4/16	sell 109-strike Nov 11 call		1.98	1.98

A few minutes before the close AAPL was trading at 108.48. We let the 109-strike expire OTM and sold next week's 108-strike options to generate 1.14 of premium.

Date	Action	$ out	$ in	Time Premium
11/11/16	109-strike expired OTM	0.00
11/11/16	sell 108-strike Nov 18 call		1.62	1.14

Here's the math we used to determine the 108-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	1.04	net call premium + paid divs
dividends yet to be paid 2016	0.00
assumed income received	1.04	net call premium + unpaid divs
current stock price	108.48	at the time we rolled
stock price + assumed income	109.52	108.48 + 1.04
income needed by Dec 31	17.67	127.19 - 109.52
weeks remaining	7	in 2016
income needed per week	2.52	17.67 / 7
2016 YTD return	6.8%	(109.52 - 102.57) / 102.57

To stay on track for a 24% return for the year (which includes unpaid, but expected, dividends) we need 2.52 per week for the remaining 7 weeks in time premium. When examining the choices just before Friday's close we saw the 108-strike was offering the highest time premium at 1.14 (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
10/28/16	116-strike expired OTM	0.00
10/28/16	sell 114-strike Nov 4 call		0.81	0.81
11/3/16	dividend		0.57
11/4/16	114-strike expired OTM	0.00
11/4/16	sell 109-strike Nov 11 call		1.98	1.98

A few minutes before the close AAPL was trading at 108.48. We let the 109-strike expire OTM and sold next week's 108-strike options to generate 1.14 of premium.

Date	Action	$ out	$ in	Time Premium
11/11/16	109-strike expired OTM	0.00
11/11/16	sell 108-strike Nov 18 call		1.62	1.14

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

Item	Value	Notes
starting capital	102.57	Initial cost of shares
actual income received	-6.45	net call premium + paid divs
current stock price	108.48	at the time we rolled
stock price + actual income	102.03	108.48 - 6.45
2016 YTD return	-0.5%	(102.03 - 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
10/28/16	119-strike expired OTM	0.00
10/28/16	sell 116-strike Nov 4 call		0.23	0.23
11/3/16	dividend		0.57
11/4/16	116-strike expired OTM	0.00
11/4/16	sell 111-strike Nov 11 call		1.01	1.01

A few minutes before the close AAPL was trading at 108.48. We let the 111-strike expire OTM and sold next week's 111-strike options to generate 41 cents of premium.

Date	Action	$ out	$ in	Time Premium
11/11/16	111-strike expired OTM	0.00
11/11/16	sell 111-strike Nov 18 call		0.41	0.41

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

Item	Value	Notes
starting capital	102.57	Initial cost of shares
actual income received	-6.92	net call premium + paid divs
current stock price	108.48	at the time we rolled
stock price + actual income	101.56	108.48 - 6.92
2016 YTD return	-1.0%	(101.56 - 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
11/3/16	dividend		0.57

This strategy's summary when AAPL was trading at 108.48 near the close Friday:

Item	Value	Notes
starting capital	102.57	Initial cost of shares
actual income received	2.23	paid dividends
current stock price	108.48
stock price + actual income	110.71	108.48 + 2.23
2016 YTD return	7.9%	(110.71 - 102.57) / 102.57

Mike Scanlin is the founder of Born To Sell and has been writing covered calls for a long time.

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