Bookmark and Share 16, Weekly Apple (AAPL) Trade Apr 16

Apple is down 3% this morning without any significant news. This presents a good opportunity for a 5 day covered call trade using the April expiration this Friday.

Annualized Return Of 29% Or Higher

There are several in the money strikes offering an annualized return of 29% or higher right now. To make one of these weekly trades, you would buy AAPL today and then sell a call option that expires this Friday, with the hope of having your stock called away.

Buy AAPL at 591.19 and then sell one of these:

Strike Call Bid Net Debit Annualized Return
555 38.25 552.98 29.2%
560 33.90 557.33 36.5%
565 29.69 561.63 43.8%
570 25.50 565.73 58.4%
575 21.65 569.58 73.0%

If AAPL stays above the strike you choose by this Friday then your stock will be called away and you make the Annualized Return shown. While transaction costs are not factored into the above, the bid-ask spread on these deep in the money options is very wide, so you can probably do better than the net debit shown by placing a limit order to sell the option at the mid-point between the bid and ask.

If you are not assigned on Friday (i.e. AAPL is below the strike you choose) then you own AAPL at the net debit shown and can write another option for the May cycle (although earnings are on Apr 24 so you will have to decide if you want to take earnings risk or not).


winning tradeApr 21, 2012: Post-expiration followup... AAPL closed at 572.61 on the last day of trading for the above options. The first 4 strikes (555, 560, 565, 570) finished in the money, were called and the Annualized Returns shown above were realized. The 5th one (strike of 575) finished out of the money but was still profitable since the closing price of 572.61 was above the net debit cost of 569.58, yielding a profit of $3.03 per share and an annualized return of 38.8%.

A good example of how you can make money with covered calls even if the stock drops from 591.19 to 572.61 during the time you own it.

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