Sold One AAPL Covered Call

Yesterday, I wrote that I planned to sell a covered call on half of my AAPL shares along with a new naked put on MDY. The pair would set me up to be on margin potentially if the call wasn’t assigned and the put was. I decided to hold off on the MDY put part of that for now, but probably won’t wait too long before finding something to use my cash.

While AAPL was trading at $153.04, I sold one AAPL $155 covered call for $6.90 and received $689.32 after paying $0.68 in commission. I went up and down the options chart to figure out what I wanted to sell. I didn’t want to sell as close to the money as I did because of my fear of missing out on future growth. Eventually, I pushed that fear aside and went with this lower $155 strike rather than the $160, $165, or even $170 strikes I was considering.

If my shares are called away at the March expiration, I’ll make a 5.47% return, 30.57% annualized. If AAPL stays flat (it won’t), I’ll make a 4.49% return, 25.11% annualized, from the premiums alone. Each $5 step higher in strikes helped my return if assigned, but it also reduced my return if not assigned. That’s how options work and most of you who read my blog know that. The decision maker for me was that I have an extra 100 shares to gain more on if AAPL pushes above $161.89 (my effective sale price including the premium). Selling only one covered call close to the money brought in more in premiums than selling two calls at the $165 strike where I could’ve earned $3.15 per contract. Since $690 is more than $630 ($315 x 2), I didn’t have to fret over the decision any longer.

AAPL was trading at $153.52 when I placed my initial limit order and I chased it lower until it my order hit while the stock was nearly $0.50 lower. The bottom might be in for AAPL using it’s January 3 intraday low of $142.00. The upside is what gave me pause about selling a covered call at all. I can see a clearly defined trading channel for AAPL that began in early November. Using the all-time high reached on October 3, the same line follows a handful of lower highs, outside of a few weeks where the line wasn’t established. Anyway, I sold the lower strike for the better premium based on my worry that AAPL won’t break above this trend line of lower highs in the near-term. If it does break out, I see potential resistance around $163.45, just above my effective sale price. This line acted as support for AAPL in the first half of December and might repeat its magic again, but as resistance the second time around.

If AAPL does break out, it’ll mean that my other holdings are probably going along for the ride higher too as risk-on resumes its momentum trade. If AAPL falters, I’ve cut my cost by $690 at least.