Bookmark and Share 8, Weekly Apple (AAPL) Trade May 8

Apple is down 1.5% this morning along with the broader market based on European concerns. This presents a good opportunity for a 4 day covered call trade using the weekly May expiration this Friday. We did this before and it worked out well.

Annualized Return Of 25% Or Higher

There are several in the money strikes offering an annualized return of 25% 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 559.19 and then sell one of these:

Strike Call Bid Net Debit Annualized Return
540 21.10 538.52 25.1%
545 16.95 542.82 36.7%
550 13.30 546.82 53.0%

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 next cycle. Your adjusted cost basis (i.e. break even point) is the Net Debit.

winning tradeMay 12, 2012: Post-expiration followup... AAPL closed at 566.71 on the last day of trading for the above options. All 3 strikes shown finished in the money, were called, and the Annualized Returns shown above were realized.

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