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Weekly Apple (AAPL) Trade December 5
Our track record is 24 out of 24 successful weekly trades in Apple (AAPL) since Apr 16, 2012 (see prior blog postings).
Apple is down 4% this morning, setting up a 3-day in-the-money covered call to take advantage of this pullback.
Annualized Return of 67% to 91%
Buy AAPL at 551.57 and write one of these covered calls:
| Strike | Call Bid | Net Debit | Absolute Return |
Annualized Return for 3 day trade |
|---|---|---|---|---|
| 535 | 19.50 | 532.07 | 0.55% | 67% |
| 540 | 15.60 | 535.97 | 0.75% | 91% |
If AAPL stays above the strike you choose by Friday then your stock will be called away and you make the Annualized Return shown over a 3 day period.
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 cost basis (i.e. break even point) is the Net Debit.
Dec 10, 2012: Post-expiration followup... AAPL closed at 532.99 on the last day of trading for the above options. Both strikes shown above finished out of the money, and anyone who took these trades now owns AAPL at the Net Debit shown.
So now what?
We believe AAPL is oversold due to tax selling, margin increases, and fiscal cliff uncertainty. We believe it will bounce back to 540 or higher. We suggest waiting for the bounce and then selling a weekly option with the same strike you started with for this trade. AAPL is a solid long-term company and this should be workable situation that we can manage back to a profitable outcome.
Mike Scanlin is the founder of Born To Sell and has been writing covered calls for a long time.