dividend increase Nov 26, 2016 Apple Strategy Updated Nov 26, 2016

Apple closed at 111.79 on Friday, after having closed the previous week at 110.04. Three of our AAPL strategies had in-the-money options at expiration so we bought them back and sold new options for the Dec 2 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
8.3%-2.8%
24%/year goalITM/ATM weekly covered calls
+ dividends
8.8%-2.3%
ATMATM weekly covered calls
+ dividends
1.5%-9.6%
2% OTM2% OTM weekly covered calls
+ dividends
2.8%-8.3%
buy and holddividends 11.1%

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
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
11/18/16 buy 108-strike Nov 18 call 2.00 -0.01
11/18/16 sell 110-strike Nov 25 call 0.96 0.96

A few minutes before the close AAPL was trading at 111.75. We bought back the 110-strike options and sold next week's 112-strike options to generate 90 cents of premium.

Date Action $ out $ in Time Premium
11/25/16 buy 110-strike Nov 25 call 1.76 -0.01
11/25/16 sell 112-strike Dec 2 call 0.90 0.90

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 -0.65 net call premium + paid divs
dividends yet to be paid 2016 0.00
assumed income received -0.65 net call premium + unpaid divs
current stock price 111.75 at the time we rolled
stock price + assumed income 111.10 111.75 - 0.65
income needed by Dec 31 3.78 114.88 - 111.10
weeks remaining 5 in 2016
income needed per week 0.76 3.78 / 5
2016 YTD return 8.3% (111.10 - 102.57) / 102.57

With that, we knew that to get 12% return for the year (which includes unpaid, but expected, dividends) we need 76 cents per week for the 5 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 76 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
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
11/11/16 109-strike expired OTM 0.00
11/11/16 sell 108-strike Nov 18 call 1.62 1.14
11/18/16 buy 108-strike Nov 18 call 2.00 -0.01
11/18/16 sell 110-strike Nov 25 call 0.96 0.96

A few minutes before the close AAPL was trading at 111.75. We bought back the 110-strike options and sold next week's 112-strike options to generate 90 cents of premium.

Date Action $ out $ in Time Premium
11/25/16 buy 110-strike Nov 25 call 1.76 -0.01
11/25/16 sell 112-strike Dec 2 call 0.90 0.90

Here's the math we used to determine the 112-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 -0.14 net call premium + paid divs
dividends yet to be paid 2016 0.00
assumed income received -0.14 net call premium + unpaid divs
current stock price 111.75 at the time we rolled
stock price + assumed income 111.61 111.75 - 0.14
income needed by Dec 31 15.58 127.19 - 111.61
weeks remaining 5 in 2016
income needed per week 3.12 15.58 / 5
2016 YTD return 8.8% (111.61 - 102.57) / 102.57

To stay on track for a 24% return for the year (which includes unpaid, but expected, dividends) we need 3.12 per week for the remaining 5 weeks in time premium. When examining the choices just before Friday's close we saw the 112-strike was offering the highest time premium at 0.90 (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
11/11/16 109-strike expired OTM 0.00
11/11/16 sell 108-strike Nov 18 call 1.62 1.14
11/18/16 buy 108-strike Nov 18 call 2.00 -0.01
11/18/16 sell 110-strike Nov 25 call 0.96 0.96

A few minutes before the close AAPL was trading at 111.75. We bought back the 110-strike options and sold next week's 112-strike options to generate 90 cents of premium.

Date Action $ out $ in Time Premium
11/25/16 buy 110-strike Nov 25 call 1.76 -0.01
11/25/16 sell 112-strike Dec 2 call 0.90 0.90

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

Item Value Notes
starting capital 102.57 Initial cost of shares
actual income received -7.63 net call premium + paid divs
current stock price 111.75 at the time we rolled
stock price + actual income 104.12 111.75 - 7.63
2016 YTD return 1.5% (104.12 - 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
11/11/16 111-strike expired OTM 0.00
11/11/16 sell 111-strike Nov 18 call 0.41 0.41
11/18/16 111-strike expired OTM 0.00
11/18/16 sell 112-strike Nov 25 call 0.25 0.25

A few minutes before the close AAPL was trading at 111.75. We let the 112-strike expire OTM and sold next week's 114-strike options to generate 23 cents of premium.

Date Action $ out $ in Time Premium
11/25/16 112-strike expired OTM 0.00
11/25/16 sell 114-strike Dec 2 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 -6.26 net call premium + paid divs
current stock price 111.75 at the time we rolled
stock price + actual income 105.49 111.75 - 6.26
2016 YTD return 2.8% (105.49 - 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 111.75 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 111.75
stock price + actual income 113.98 111.75 + 2.23
2016 YTD return 11.1% (113.98 - 102.57) / 102.57

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