Selling an in-the-money (ITM) call option on AAPL with a strike price of $175 and an expiry date of August 18th, 2023, can result in different outcomes depending on AAPL's price at expiration. Here's a detailed breakdown of the scenarios:
Scenario 1: AAPL closes above $175 at expiration (up)
If AAPL closes above the strike price of $175 at expiration, the call option will be exercised, and the following will occur:
- Obligation to sell: You will be obligated to sell 100 shares of AAPL at the strike price of $175 per share.
- Premium collected: You will keep the premium of $4.05 per share ($405 for one contract) that you received when selling the call.
- Net sale price: Your effective sale price per share will be $175 + $4.05 = $179.05, slightly above the current price of $177.97.
- Profit or loss: Depending on your original purchase price for AAPL, the net sale price might represent a profit or loss on the underlying shares. The premium collected will add to your gains or mitigate any loss.
Scenario 2: AAPL closes at or below $175 at expiration (down)
If AAPL closes below the strike price of $175 at expiration, the call option will expire worthless, and the following will occur:
- No obligation to sell: You will not be obligated to sell any AAPL shares, as the option was not exercised.
- Premium collected: You will keep the entire premium of $4.05 per share ($405 for one contract) that you received when selling the call.
- Continued ownership: You will continue to own the AAPL shares, but their market value may be less than when you sold the call, depending on how far below $175 AAPL closes.
- Cushion against decline: The premium collected serves as a cushion against the decline in AAPL's share price, effectively reducing your downside risk.
Selling an ITM call option on AAPL with a strike price of $175 can be an effective strategy for investors looking to potentially unload shares at a favorable price or collect premium as income. The outcomes vary depending on AAPL's closing price at expiration, either resulting in the sale of shares (if above $175) or retention of shares with premium income (if below $175).
2. Acquiring more shares: selling in-the-money (ITM) cash secured puts
For investors with a bullish outlook on Apple (AAPL) and a desire to expand their holdings at favorable prices, selling in-the-money (ITM) cash-secured puts can be an astute strategy. This technique aligns with a growth-oriented approach, allowing you to potentially acquire AAPL shares at a discount to current market levels while also collecting premium income. Whether aiming to capitalize on perceived undervaluation or simply seeking to increase exposure to the tech giant, this strategy provides a controlled method to add more AAPL shares to your portfolio, reflecting confidence in the company's future prospects.
If you are bullish on AAPL (or other tech names) and want to increase your holdings, selling ITM cash-secured puts can be a way to acquire shares at a discount:
• Strategy: Sell ITM put options, setting aside the necessary cash to buy AAPL if assigned.
• Objective: Potentially buy AAPL at a lower price than current market levels, while collecting a premium.
• Risk Profile: If AAPL falls below the strike price, you'll be obligated to buy. If AAPL rises, you keep the premium without buying the shares.
• Application: This technique can also be applied to other tech stocks, allowing you to acquire shares at favorable prices.
Let's look at an example: