Monday, June 10, 2013

Apple Call - "Roll on the News"

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.

As discussed  here  CCI's last activity in this position was to sell the June $660 call against the Jan $300 call held in the portfolio. Since that time the stock has drifted mostly sideways (slightly up).  This week Apple is holding its developer conference. CCI has no particular insight into what this conference might mean to the company or its products.  However, these type of events often seem to lend themselves to the old adage "buy on the rumor, sell on the news".  In this case, "roll on the news". The intent of rolling this option position was to
  • harvest a little of the option premium gained to date 
  • re-establish a covered call that provides a little more risk protection and reward if the stock were to jump up or down based on the perceived outcome of the conference.

Specifically, CCI closed the June $660 call and rolled out to the July 5 (two weeks further out) $665 call. This transaction was done for a $1.34 credit/contract after commissions.  The June $660 call position made a very modest $.61/contract, and the July 5 $665 contract has about $5.70/contract in premium remaining at this time.

If you have been keeping score at home ... Since Mar. 1 when this position was established
  • Holding the stock would have resulted in the position being up 4.3% (including dividends)
  • Holding the $300 Leap for leverage would have resulted in the position being up 8.0%
  • Holding the $300 Leap and rolling calls against that position as described here is up 14.5%
So good, but the reactions to the developers conference will likely impact these results in some manner. Hence, it is likely CCI will adjust the position again in a week or two in anticipation of  Apple's q2 earnings results in late July.

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