- Execution: SellToOpen 1 10-Nov-2023 177.5 Call @ $1.40 (Delta: 0.2523)
- Premium and risk: Per share: $1.40 (credit)
- Premium earned: $1.40 x 100 (per contract) = $140
- Max risk: The risk lies in the stock ownership, which is capped at the stock's current market price of $170.76 x 100 (per contract) = $17,076.
- Breakeven point: Varies based on stock cost basis
- Yield Calculation over 11 Days:
Yield = (Premium earned / Cost of Stock) x 100
Yield = ($140 / $17,076) x 100 = 0.82%
- Annualized Yield:
Annualized Yield = (0.82% x 365) / 11 = 27.24%
- Rationale: The primary aim is to generate additional income from your existing stock holding, recognizing that this comes with the trade-off of having a capped upside potential. If Apple’s stock trades above $177.5 at expiration, you'll have to part with your shares at that price.
- Stock vs Options Comparison: Writing a covered call allows you to secure immediate premium income, with the risk that your Apple shares could get called away at $177.5, representing a capped upside but also a potential profitable exit for your stock holding.
When it comes to investing in options around Apple's earnings, each strategy comes with its unique set of rewards and risks. The key is aligning your strategy with your market outlook and risk tolerance.
The comparisons between buying stock and using options reveal interesting facets:
- Buying calls: The leverage effect of a call option allows you to control the same amount of stock with less capital. A $1 increase in Apple's stock results in an $80.55 gain with a call, compared to a $22 gain by holding 22 shares of the stock for the same amount of capital.
- Selling ITM puts: This strategy could allow you to acquire Apple at a discounted rate compared to buying shares directly. The effective purchase price would be the strike minus the premium received, which can be calculated as a percentage discount against the current stock price.
- Buying puts: Options offer a leveraged way to bet against the stock with a defined risk, which can be particularly useful in volatile times.
- Writing covered calls: This strategy provides additional income and an annualized yield of 27.24%, which you can't get by just holding the stock.
Each option strategy can serve a purpose depending on your viewpoint on the stock and market conditions, making options a flexible tool for various investment goals.