I recently posted a 19% yield while owning $aapl stock. Here is another way of generating income a la Dividends. btw, if you like these posts spread the word, folo @racernic & peruse the rest of my post including the sides ;-) I do these post for free and have no subscription pitches etc.
Instead of buying the stock, I can buy a deep-in-the-money (DITM) long-dated call (out a few months or even year+ - LEAP).
Here are the numbers as of yesterday's close (i wrote this yest and didn't have chance to update)
Aug12 aapl 550 call is $84ish. so, buy 10x100x84= $84k (as opposed to if i wanted to buy 1000 shares of appl fir 605k)
Here are the numbers as of yesterday's close (i wrote this yest and didn't have chance to update)
Aug12 aapl 550 call is $84ish. so, buy 10x100x84= $84k (as opposed to if i wanted to buy 1000 shares of appl fir 605k)
I can sell april call 645 against this long DITM position that I own. For this I collect $10. For this to make sense, i sell a shorter-dated call (much shorter). Time decay will be on my side eating away at the near-dated short 645 call. Since I own 10xDITM call, I can sell 10x call so my take would be $10 x 1000 = $10,000.
that's a return of 11.9% in under a month.
To close the position I either manage the short call to expire worthless in April (for max prof) then sell my asset (the long-date DITM call). Or I can close the position anytime by buying back the april short call and selling the long Aug call.
Desired outcome is: aapl closes below 645 by April 20th (April option expiration) and I keep the whole $10,000 I collected today. and I sell my long DITM call (I can choose to keep it and do it over again).
In case aapl raches 645, i can adjust the position until I let it expire or close it to pocket most if not all the 10k. The theoretical probability of aapl NOT reaching 645 is abt 80% (that's darn good in my favor).
if 84k is too big i can go half
- buy aapl DITM Aug12 550 call 84; 5x so outlay 5x100x84= $42,000
- sell aapl Apr12 645; 5x so collect 5x100x10ish = $5,000 (same 11.9% return on a smaller scale)
- close trade by managing 645call to expire; sell the long DITM call to recoup investment +/- change in price
Or even smaller with just one lot (which is what i do for my 10year old son)
- buy aapl DITM Aug12 550 call 84; 1x so outlay 1x100x84= $8,400
- sell aapl Apr12 645; 1x so collect 1x100x10ish = $1,000 (same 11.9% return on a smaller scale)
- close trade by managing 645call to expire; sell the long DITM call to recoup investment +/- change in price
As with any trade there are risks but in this case the I am very comfortable with the dollars at risk. I always try to know and manage my risk; I ask 'what will I lose if the crap hit the fan in the worst possible way.' If I know the answer to this and am ok with it then I should be ok.
THIS IS NOT A RECOMMENDATION OF ANY KIND. I ONLY INVEST MONEY I CAN AFFORD TO LOSE.
