Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Investment and Options Strategist
Summary: This article provides a comprehensive guide to using covered calls for generating additional income with Apple (AAPL) shares. It covers setup steps, potential outcomes, management tips, and key considerations for strike price and expiration date selection, all aimed at optimizing returns while managing risks.
Covered calls are a popular options strategy for generating additional income while holding a long position in a stock. This approach involves selling call options against owned shares, allowing investors to earn premiums. This strategy can be particularly effective for well-known stocks like Apple (AAPL), offering a balance between income generation and potential stock appreciation. In this article, we'll take a deep dive and explore the specifics on how such a covered call strategy can be set up, managed, and optimized for Apple investors.
A covered call involves two key actions:
Apple is often chosen for covered calls due to its strong market presence and established reputation. The company's significant influence in the technology sector and consistent product innovation make it a preferred choice among investors. Additionally, Apple's robust financial health and widespread brand recognition contribute to its appeal for implementing covered call strategies.
Imagine owning 100 shares of Apple at $190 and selling a call option with a $200 strike price for a premium of $3 per share. If the stock stays below $200, you keep the premium and the stock. If it rises above $200, you sell the shares at $200 but keep the premium.
Please note that throughout this example, we do not take into account any commissions, fees, or taxes that may apply to transactions. Additionally, past performances are never a guarantee of future performances. This example is pure educational.
Implied volatility for Apple options can indicate potential price movements around significant events. Factors such as the stock’s beta and historical volatility are important to consider when evaluating options strategies. If major product announcements or earnings reports are approaching, implied volatility may increase, potentially affecting option pricing and strategy outcomes.
Covered calls on Apple can be a strategic move to generate income and protect against minor declines, but they require careful planning and understanding of the risks involved.
Consider this scenario: You initially bought Apple stock at $190 and sold a call option with a $200 strike price. As the stock price rises to $200, you find yourself hesitant to sell your shares. What can you do in this situation? Simply closing your call position is one option, but what are the financial implications? Will you incur a loss, or are there other strategies to optimize the profits from your covered calls while retaining your stock? In this section, we'll explore various tips and strategies for managing covered calls when you prefer not to sell your underlying shares.
If you initially sold a $200 call and the stock rises to $200:
When it comes to selecting the strike price and expiration date for your covered calls, several factors come into play. Why might you choose a July expiration with 50 days remaining and a $200 strike price with a delta of 0.29? What are the reasons for these specific choices, and how do they compare to other possible strikes and expiries? In this section, we'll delve into various considerations and strategies for choosing the optimal strike prices and expiration dates, as well as the implications of selecting different options.
Selecting the right strike price and expiry depends on balancing your income goals, risk tolerance, and market outlook. Consider the delta, time value, and upcoming market events when making your decision. Adjusting your strategy based on market conditions and your financial goals can help optimize your returns from covered calls.
Guide on long-term options for strategic portfolio management |
---|
Long-term options can be a prudent addition to your investment approach if you're looking to:
|
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)