Uncovering the Strategy: Selling Covered Calls on Apple Uncovering the Strategy: Selling Covered Calls on Apple Uncovering the Strategy: Selling Covered Calls on Apple

Uncovering the Strategy: Selling Covered Calls on Apple

Chun Fei Lin

Sales Trader

Summary:  Apple has faced challenges that have contributed to its stock trading sideways. Despite declining iPhone demand and regulatory scrutiny, investors holding a long-term stake in Apple can consider selling covered calls to earn premiums and navigate stagnant markets. While this strategy offers advantages such as passive income, it's important to be aware of potential risks, including capping the stock's upside potential.

22 Apple Chart

Why has Apple been trading sideways? 
Apple, formerly the uncontested leader of the technology realm, is now encountering challenges from various directions. There has been a global decline in demand for the iPhone, which has facilitated the entry of Chinese brands into the market. The App Store, a significant revenue source for Apple, is currently the subject of a lawsuit filed by the Department of Justice, and the company is facing regulatory scrutiny in Europe.

Additionally, Apple recently terminated a high-profile EV car project that was once touted as a major upcoming venture for the company. As a result of these developments, the company's valuation has suffered. Despite reaching a historic $3 trillion in 2023, its market capitalization plummeted by hundreds of billions of dollars in early 2024, allowing Microsoft Corp. to surpass Apple as the world's most valuable tech company. These are the various challenges that Apple is currently confronting on a global scale.

What can you do?
Investors who have a long-term stake in Apple and aim to sell the shares at a higher price, even in a sideways or downward market, may opt to sell call options on Apple. This strategy allows them to earn premiums from the call options, thereby generating extra income while awaiting a rise in Apple's share price to your desired target.

1. With Apple’s stock price at $165.84 on 22 April 2024, sell a call option on Apple with a $170 strike price (if you are comfortable selling your apple shares at $170) for 2-week expiry (10 days). You receive a total premium of $222 ($2.22 x 100 shares).
This is annualized yield of 48.2% (2.22/165.84) x (360/10).
If Apple’s price falls below $170 (strike price of the call option) at expiry, the option may expire worthless, and the investor retains the premium.
If Apple’s price rises above $170 strike price, the investor may be obliged to sell the Apple share at $170, but the investor will still retain the option premium.


    When comparing it to a longer maturity, you can observe how this alters the premium you receive and the distance over which you will be able to set the strike.

    • If the investor wants to receive more premium, the investors can go for an option with a further expiry. For the same strike at $170, the premium increases to $3.20 as the duration increases to 24 days on 17th May (Annualized yield 28.9%).
    • If the investor is only willing to sell the stock at a higher price but still want to receive same amount of premium, the investor has to choose the option with the further expiry. For a similar premium of $2.22, you can sell the option with the strike $180 and expiry in 59 days on 21st June (Annualized yield 8.2%).
    • THe table below shows how the premium yield changes as we adjust the strike price and expiry date. The premium yield are subject to many factors including how close the strike is to the current price as well as market moving events surrounding Apple. 
    How premium yields change with strike and expiry

    22 Apple option annualized

    Advantages of covered calls
    1. Generates passive income. Selling a covered call generates an income via premiums that can supplement the overall return of a portfolio.
    2. Relatively low risk. As the risk of being short a call is covered with your stock position, this is a relatively low risk way to trade options.
    No extra margin required to sell covered callsAs you hold the underlying stock for delivery, there is no extra margin required to sell the same number of covered calls at Saxo.

    Risks of trading covered calls
    1. Capping your stock’s upside potential. One key risk is the loss of opportunity to profit from your stock’s potential upside above the call option’s strike price.
    Risk of using covered calls as a proxy for take profit orders: In the example above, it is possible that the stock trades well above $170 through the course of the option but on expiry falls back below $165. Without the option, the investor might have booked the profit at $170 but because the stock was covered by call options, the investor might have waited out until expiry.

    Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Capital Markets' Terms of Use, you will find more information on this in the Important Information - Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Capital Markets' website.
    This article may or may not have been enriched with the support of advanced AI technology, including OpenAI's ChatGPT and/or other similar platforms. The initial setup, research and final proofing are done by the author.

    Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

    The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

    Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

    To the extent that any content is construed as investment research, such 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.

    None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

    Please read our disclaimers:
    - Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
    - Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
    - Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

    Saxo Capital Markets (Australia) Limited
    Suite 1, Level 14, 9 Castlereagh St
    Sydney NSW 2000

    Contact Saxo

    Select region


    The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

    Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

    Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

    Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

    The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

    Please click here to view our full disclaimer.