Another boring covered call I did yesterday...Apple

C

Cabin111

My wife and I already have 100 shares of Apple (AAPL). I think we did a leap and it expires Jan 2022 for $120. I forgot what we got for the option. We may buy that option back...We'll see.

Yesterday we picked up 100 shares at $125.03...We then did a covered call for the June 22 at $160. We got $4.40 ($440.00) for the option. With dividend, option money, investments on the dividend and option money, I think we are in a good position. Even if the stock is at $120. in June 2022 we will have been ahead of the money just sitting in a CD or money market fund.

I talk to different iPhone users...They won't give up their phones!! I think they would give up Starbucks before Apple. That's why we made the move...
 
Cabin111 said:
Yesterday we picked up 100 shares at $125.03...We then did a covered call for the June 22 at $160. We got $4.40 ($440.00) for the option.
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Not to rag on you - what's done is done - but given the current level of volatility (nearly non-existent; AAPL specifically is 38.6% below its 252 day historical mean), this was not the best idea in the world. You got about $1.18 a day for 373 days, or ~3.5% annual return on $12.5k. The market returns more than twice that historically - and much more than that over the past few years.
 
MKTrader said:
Covered calls work...until they don't.
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Ditto every other strategy. If some golden ticket existed, everybody would be using it.

In this case, selling a call at low vol was a basic mistake - not a failure of the strategy itself. The OP needs to read up on reasonable entry criteria and presumably a number of other things about how CCs work and when they're appropriate.
 
BlueWaterSailor said:
Not to rag on you - what's done is done - but given the current level of volatility (nearly non-existent; AAPL specifically is 38.6% below its 252 day historical mean), this was not the best idea in the world. You got about $1.18 a day for 373 days, or ~3.5% annual return on $12.5k. The market returns more than twice that historically - and much more than that over the past few years.
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So what is my return if it gets called away in June 2022 at $160.?? It is also a long term capital gain...It beats a money market fund/CD. How much cash is Apple sitting on???
 
Cabin111 said:
So what is my return if it gets called away in June 2022 at $160.?? It is also a long term capital gain...It beats a money market fund/CD. How much cash is Apple sitting on???
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That's more of a best-case scenario. What if we have another 2000-2003 style tech wreck and Apple crashes? What's your plan? Will you keep selling covered calls? If the price is below your basis, will you let it get called away for a loss...or will you buy it back and take a loss on the transaction? Or will you keep rolling it out way into the future? Some people are in this situation now, at the top of a bull market, due to picking the wrong stocks.
 
Cabin111 said:
So what is my return if it gets called away in June 2022 at $160.?? It is also a long term capital gain...It beats a money market fund/CD. How much cash is Apple sitting on???
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@MKTrader called it. The P&L graph for CCs is the same as for naked puts; if the price goes down past your basis, you lose. But you're also capping your gains; if, say, AAPL goes to 175 by then, you won't get to participate in anything past 160... and you didn't get enough credit to make up for all that risk.

If anything, this would be the time for a married put - not a covered call.
 
destriero said:
CC + married put = synthetic bull vertical.
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Dammit, I keep neglecting this stuff while chasing after other things... got to get more conversant with it. :) OK: a married put is synth-eq to a long call (P + S = C), and a CC is just S - C (i.e., C - P - C, a.k.a. just a -P . Ugh.)

Now it makes sense.

OTM verts are cheap in low vol environments. This CC is junk.
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Yeah, what I figured.
 
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