Bookmark and Share Apple (AAPL) Trades June 21

Apple has been a horrible stock lately. Many reasons have been well covered by others, with the lack of new products being #1. However, yesterday's rumors of AAPL getting into the search business, plus prior rumors of new iPhones, iWatches, and iTVs, means that the next 6-12 months should be good for new product announcements. Combined with the recent stock drop, and ongoing company share buyback, now is a reasonable time to put on a new in-the-money buy-write AAPL trade. Should the option expire out-of-the-money, you will likely have a low enough basis that you can profitably write a follow on option.

Take Advantage Of The Dip

AAPL has dropped 40 points in 3 weeks mostly because of a lackluster Worldwide Developer's Conference and market conditions overall.

AAPL Stock Price June 1 - 21, 2013
AAPL stock price June 2013

However, the company is still a strong profit machine and should be for years to come. The next earnings release date is July 22, so we have a choice of 4 expiration dates that do not include earnings: June 28, July 5, July 12, July 19 (they also do not include any dividends).

Let's look at the returns for buy-writes with the nearest in-the-money strike, the 405s, when the stock is trading at 409.60:

Expiration Strike Call Bid Net Debit Days To
Profit If
AAPL > 405
June 28 405 9.30 400.32 7 4.68 61%
July 5 405 11.50 398.12 14 6.88 45%
July 12 405 13.50 396.12 21 8.88 39%
July 19 405 15.25 394.37 28 10.63 35%

All of these are in-the-money and have an annualized return of 3% to 5% per month. More conservative investors will want to look at the 400 strike (28% annualized return for July 19 expiration), or even the 395 strike (23% annualized return for July 19 expiration).

Note that if you're already long AAPL and have a basis higher than current market price, you probably are better off waiting than writing a below-basis strike right now (see article on Stock Repair for some possible ideas).

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

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