Bookmark and Share Jan 5, 2013 Weekly Apple (AAPL) Trade January 5

This is a continuation of a covered call trade we started on December 5, 2012, on AAPL.

We've now had 4 sets of weekly calls expire out of the money. The bad news is that as of Jan 4, 2013, AAPL is below our Dec 5 purchase price by about 24 points. The good news is that we've lowered our basis between 42 and 53 points by selling weekly calls, so the trades are currently profitable.

Here is a recap of what we've done to date (see prior blog articles). We purchased AAPL at 551.57 on Dec 5. There were 2 strikes suggested, a 535 and 540, so we have to track two separate trades.

If you wrote the 535s on Dec 5, this is where you are today:

Date Action Stock Option
Dec 5 Buy 100 AAPL 55157
Dec 5 Sell 1 Dec 7 535 call 1950
Dec 11 Sell 1 Dec 14 535 call 1300
Dec 17 Sell 1 Dec 22 525 call 610
Jan 2 Sell 1 Jan 4 540 call 1515
Jan 5 Adjusted cost basis 49782

If you wrote the 540s on Dec 5, this is where you are today:

Date Action Stock Option
Dec 5 Buy 100 AAPL 55157
Dec 5 Sell 1 Dec 7 540 call 1560
Dec 11 Sell 1 Dec 14 540 call 1015
Dec 17 Sell 1 Dec 22 530 call 445
Jan 2 Sell 1 Jan 4 545 call 1155
Jan 5 Adjusted cost basis 50982

On Friday AAPL closed at 527 and your adjusted cost basis is either 497.82 (if you started with 535s on Dec 5) or 509.82 (if you started with 540s). You could just sell the stock today and book your profits, or you could continue the trade with another 5-day in-the-money covered call on Monday morning.

If you choose to write another call, we suggest these 2 slightly out of the money calls for next week. We choose out of the money because we expect AAPL to rise leading up to the Jan 23 earnings release. The 530 strike would be for people who started on Dec 5 with the 535s, and the 535 strike for those who started on Dec 5 with the 540s:

Strike Call Bid Adjusted
Net Debit
Annualized Return
for 37 day trade
530 6.60 491.22 78%
535 4.60 505.22 58%

If AAPL closes above the strike you choose by next Friday then your stock will be called away and you make the Annualized Return shown over a 37 day period (Dec 5 to Jan 11).

If you are not assigned on Friday (i.e. AAPL is below the strike you choose) then you own AAPL at the adjusted net debit shown and can write another option for the next cycle. Your adjusted cost basis (i.e. break even point) is the Adjusted Net Debit.

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