Mastering covered calls: a strategic guide for Apple investors Mastering covered calls: a strategic guide for Apple investors Mastering covered calls: a strategic guide for Apple investors

Mastering covered calls: a strategic guide for Apple investors

Options 10 minutes to read
Koen Hoorelbeke

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.

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.


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.

What is a Covered Call?

A covered call involves two key actions:

  1. Owning the underlying stock: In this case, holding shares of Apple.
  2. Selling a call option on that stock: This generates income (the premium) and provides some downside protection, although it limits upside potential if the stock price rises significantly.
Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

Why Apple?

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.

data/charts © Saxo

Setting Up a Covered Call

  1. Buy Apple Stock: Own at least 100 shares of AAPL.
  2. Sell Call Option: Choose a strike price above the current trading price and an appropriate expiration date. For example, you might sell a $200 call option expiring in one month.
  3. Receive Premium: Collect the premium from selling the call option.

Potential Outcomes

  1. Stock Price Below Strike Price: You keep the premium and the stock, potentially increasing your total return.
  2. Stock Price Above Strike Price: You might have to sell your shares at the strike price, capping your upside but still profiting from the stock appreciation and premium received.

Benefits of Covered Calls

  • Generates additional income.
  • Provides a cushion against small declines in stock price.
  • Can enhance overall portfolio returns.

Risks and Considerations

  • Limits the upside potential.
  • Requires monitoring and management.
  • Could result in selling stock at a price lower than the market if the stock surges significantly.

Example Trade

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.

data/charts © Saxo

The Trade Setup:

  • Buy 100 shares of Apple (AAPL): At around $190 per share, the total cost would be $19,000.
  • Sell a Call Option: Sell a call option with a $200 strike price expiring in July. This could generate a premium income of approximately $3 per share, depending on market volatility and the exact expiration date.

Potential Outcomes

  1. Stock Price Below $200 at Expiry:
    • Premium Income: You keep the premium of $3 per share ($300 total).
    • Stock Ownership: You continue to hold the shares, potentially allowing for further income through dividends or additional covered calls.
  2. Stock Price Above $200 at Expiry:
    • Stock Sale: You would sell your shares at $200, realizing a gain of $10 per share ($1,000 total).
    • Premium Income: Additionally, you keep the $3 per share premium, totaling $300.
    • Total Profit: $1,300 (stock appreciation + premium).

Risk and Reward

  • Limited Upside: Your maximum gain is capped at the strike price plus the premium.
  • Downside Risk: You are exposed to the stock’s downside, but the premium provides a small buffer.
  • Breakeven Point: $187 per share (current stock price minus premium received).

Outlook and Volatility

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.

Profit Zone

  • Profit Zone: The range of prices where you make a profit is any stock price above $187 per share. 


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.


Tips and Tricks for Managing Covered Calls

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.

Rolling the Call Option

  • Definition: Rolling involves closing your current call position and opening a new call with a higher strike price and/or a later expiration date.
  • Execution: Buy back the $200 call option to close your position, then sell a new call option with a higher strike price, such as $210, or with a later expiry date.
  • Pros: This allows you to keep the stock and potentially earn additional premiums.
  • Cons: You might incur transaction costs, and if the stock price continues to rise, you might have to roll again, potentially at a loss.

Closing the Call Option

  • Definition: Simply buying back the call option to close the position.
  • Execution: If you buy back the call option when the stock is at $200, you will likely pay more than the premium you received, potentially resulting in a net loss on the option trade.
  • Pros: This protects your stock from being called away.
  • Cons: You might lose money on the call option if the stock price is above the strike price plus the premium received. This loss on the call option is compensated by the rise in price of the underlying stock which you still own.

Allow Assignment and Rebuy the Stock

  • Definition: Let the stock be called away and then repurchase it.
  • Execution: If the stock is called away at $200, use the proceeds to buy back the stock, potentially at a higher price if the stock continues to rise.
  • Pros: Allows you to realize gains and then reestablish your long position.
  • Cons: Transaction costs and potentially buying the stock back at a higher price.

Protective Puts

  • Definition: Buy a put option to protect against a downside move after rolling or closing the call.
  • Execution: Buy a put option with a strike price close to the current stock price to protect your downside risk.
  • Pros: Provides downside protection while keeping the stock.
  • Cons: Additional cost of the put option.

Scenario Analysis

If you initially sold a $200 call and the stock rises to $200:

  1. Buy Back the Call: Suppose you sold the call for $3. If the stock is at $200, the call might be worth around $10, meaning you would pay $10 to close it, resulting in a net loss of $7 on the call trade. However, you retain the stock.
  2. Roll the Call: Buy back the $200 call and sell a $210 call for a later expiry. You might receive a premium of, say, $5 for the $210 call. Your net position would be a loss of $7 on the $200 call, but a gain of $5 from the new $210 call, reducing your net loss to $2.
  3. Assignment: Let the stock be called away at $200, then use the proceeds to buy back the stock, potentially at a higher price.

Tips and Tricks for Strike and Expiry Selection

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.

Strike Price Selection

  1. Delta Considerations:
    • Delta: Delta represents the probability that the option will expire in the money. A delta of 0.29, as in your example, suggests a 29% chance of the option being exercised. This balance earning a decent premium and a lower likelihood of assignment.
    • Implications: Lower delta options (e.g., 0.10) have a lower chance of being exercised, hence lower premiums. Higher delta options (e.g., 0.50) offer higher premiums but with a higher likelihood of the stock being called away.
  2. Income vs. Risk:
    • Lower Strike Price: Closer to the current stock price, generates higher premiums but increases the chance of the stock being called away.
    • Higher Strike Price: Further from the current stock price, generates lower premiums but reduces the chance of assignment, allowing for more potential upside in the stock.
  3. Market Outlook:
    • Bullish: Choose a higher strike price to capture more stock appreciation.
    • Neutral/Bearish: Choose a lower strike price to maximize premium income as the stock is less likely to rise significantly.

Expiry Date Selection

  1. Time Value:
    • Longer Expiration: Options with more time until expiration have higher premiums due to greater time value. However, this also ties up your shares for a longer period.
    • Shorter Expiration: Provides quicker income and more flexibility to adjust your position based on market changes. Typically, premiums decay faster as expiration approaches, which can benefit sellers.
  2. Income Goals:
    • Monthly Income: Selling options with one-month expiries can provide a steady stream of income.
    • Longer-Term Income: Options with expiries of 2-3 months or longer can provide higher premiums but less frequent income.
  3. Event-Driven Strategies:
    • Earnings Announcements: Avoid expiration dates that coincide with earnings announcements or major product releases, as these can cause significant stock price movements.
    • Market Conditions: Consider overall market volatility and economic events. Higher volatility can increase option premiums but also risk.

Example: Why Choose July Expiry and $200 Strike?

  • Market Context: With Apple trading around $190 and analyst targets suggesting potential increases, a $200 strike price balances earning a reasonable premium while giving some room for stock appreciation.
  • Delta of 0.29: Suggests a moderate chance of the option being exercised, providing a good balance between risk and income.
  • 50 Days to Expiry: Offers enough time value to earn a decent premium while not tying up your shares for too long. It also aligns with avoiding major market events that could impact the stock significantly.

Implications of Different Strikes and Expiries

  • Lower Strike Prices (e.g., $195): Higher premiums but higher risk of assignment. Useful if you expect the stock to remain flat or slightly decrease.
  • Higher Strike Prices (e.g., $210): Lower premiums but lower risk of assignment. Better if you expect significant stock appreciation.
  • Shorter Expiries (e.g., 30 days): Quick income and flexibility but smaller premiums.
  • Longer Expiries (e.g., 90 days): Higher premiums and less frequent need to manage positions but less flexibility and higher risk of unforeseen market events.


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:
  • Replace part/all of your share-holdings into options-holdings, while keeping market-exposure.
  • Write Covered Calls without owning the stock, yet be "covered".
  • Secure gains and reduce exposure from positions with significant profits.
  • Diversify your investment portfolio without completely divesting valuable holdings.
  • Maintain flexibility in your market exposure with a reduced capital commitment.
Guide on long-term options for strategic portfolio management
Previous "Investing with options" articles
"Saxo Options Talk" podcast
Previous "What are your options" articles
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Why options strategies belong in every trader's toolbox
Understanding and calculating the expected move of a stock ETF index 
Understanding Delta - a key guide for Investors and Traders

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