Apple (NASDAQ:AAPL) announced Q4 earnings last week, and the world as we know it ended because it only grew revenues 16% and profits 13.5% – and the stock crashed. Google (NASDAQ:GOOG) grew profits 5% and the stock popped.
No matter – time to make some quick cash, which means it’s time to sell (write) some calls if you own AAPL shares, and sell to open puts if you don’t. The ferocious trading activity of the past few weeks has increased the volatility in the stock, and the options and premiums from selling options are obscene, meaning wonderful opportunities for sellers (writers).
The strategies I have in mind assumes you are willing to work this a bit.
Strategy 1: If You Own Apple
As I write this, the stock is hovering around $453. You can sell to open (write) a weekly AAPL $460 call that expires Friday, Feb. 1, after the close and net around $250 per contract.
Do it 50 times a year – take two weeks off to watch the Washington Nationals run through the playoffs and win the World Series – and you bring in $12,250. That is a return of 27% if the stock does not move. If it does move, you have to roll the calls forward or buy them back at a lower price and sell them again.
Strategy 2: If You Do Not Own Apple (and Do Not Want To; Shame on You)
Look at $440 as the technical support price and sell to open (write) an Apple $440 put that expires after the close Friday, Feb. 1. Do this only if you are, one, willing to own the stock at $440 and/or, toward, you are willing to roll the put into a later strike price should the stock go down.
You should get around $265 per contract a return of 0.625%. Again, do it 50 times a year…ah, do the math yourself.
Strategy 3: Sell a Call Against a LEAP
This strategy involves real risk. Not much, but it is real. And this is what you can do if you have limited capital but you’re an Apple bull and want to generate cash.
Step 1: Buy to open an Apple Jan 2014 $450 Call for around $45. You now have the equivalent of the stock in your account. You can use that to sell to open weekly or monthly calls.
If you sold to open the weekly call that expires this week at a $470 strike price, you net about a buck, or $100 a contract. Do it for 11 months and you generate around $4,700 in cash, using $4,500 in capital. No kidding.
Of course if the stock tanks, you could lose all the value in the LEAP. But if you do, and you can sell those calls, and if the stock is moving south, you should be generating far more than $4,600 in capital. That means you can still make a profit.
Apple is on sale. It may take time for it to move to where it belongs – I think around $1,200 – but you can generate cash every week while it happens.
At the time of publication, Michael Shulman both owned AAPL stock and sold puts against his shares.
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