Apple Options, That is

Let me start by saying that I like my Apple iPhone. I also have a very old iPad, but I don’t use it anymore. The phone is so much easier to carry, and it has a camera that is far superior. I also like my AAPL stock, which is up over 400% since when I purchased the shares. My cost basis for my 200 shares is $25.21, so it has been a good run. I like them apples!

I like AAPL as an investment and I like the iPhone.

Covered Call or a Cash Covered Put Option?

When it comes to options, the two trades that I do fairly regularly are covered calls and cash covered puts. A covered call is an option where I am willing to sell 100 shares of a stock I own if the price per share rises to my predetermined sell price. A cash covered put is an option where I am willing to buy 100 shares of a stock, understanding that if the price I agree to is reached, I’m obligated to buy the shares. I must have cash in my account to cover the potential purchase.

For Apple shares, the answer is “I am willing to buy at a specified price, but I am also willing to sell at a predetermined price.” In the case of AAPL, I am willing to (A) buy at $128 ($12,800 dollars of cash reserved for the purchase) and I am willing to (B) sell 100 shares at $133, which would be a magnificent profit. I can and did do (C).

My Covered Calls and Cash Covered Put Trades for Week 24

You can do BOTH

This week I choose option “C”. I did both. The reason is simple: I am paid for the contracts up-front. Admittedly, the dollars I received for this approach are rather small. I received $87.62 for these contracts. However, it is reasonably certain that Apple will not rise to $133, so I probably won’t have to relinquish my shares at market close on June 18.

There is a slightly greater chance, in my opinion, that the shares will fall to $128. That would be nice, as I would buy the 100 shares. I could have sold my AAPL shares using a sell limit order of $133, but it it doesn’t get there, I don’t make any additional profit. I could also do a buy limit order to purchase 100 shares at $128, but that might not happen. Therefore, receiving a small income from the covered call plus put option is a good way to continue to add cash to my IRA.

I have to sell 100 shares of AAPL if the price rises to or above $133. I have to buy 100 shares if it falls to or below $128.

Little Bites Add Up

There is a biblical principle associated with my approach. It is found in the Old Testament book of Proverbs:

Proverbs 13:11 “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.” (ESV)

Full Disclosure

I own 200 shares of AAPL and would not mind buying more or selling some.