Saturday, April 27, 2013

Closed Apple Covered Call

As discussed here, CCI is long the Apple (AAPL) Jan $300 call as a stock replacement and intends to  write shorter term calls against the position.  CCI's primary thesis is that Apple's low valuation will provide a floor under the stock, but margin pressures from lots of worthy competitors will keep a lid on the stock. Hence, there is a good probability Apple will trade sideways for awhile, and this options strategy would capitalize on that situation.

Apple reported earnings this week. They seemed about as expected.  The stock moved back up a little. Also, as would be expected, the volatility came out of the options.  Hence the May 10 $460 call that the portfolio was short moved down rapidly.  It was closed at $.33/contract resulting in a profit of $2.57/contract. 

For those of you keeping score at home, that brings the premium collected over three cycles of covered calls to  $8.50 over about 6 weeks.  That is a modest 2% gain against the base price of the stock, but a 6% gain via the leverage of the LEAP.   The intent is to continue this process harvesting premium until hopefully some day the stock price gyrates back towards $450. 

The portfolio does not currently have a covered call position in place, but will be looking to add something like the June $450 short call if the stock moves up a little more.  Stay tuned.


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