Tuesday, March 20, 2012

$AAPL dividend trade for 19%


So much has been made of the $aapl dividend. For aapl shareholders, here is a strategy to make your own dividend in appl:
say I own 100 shares of the stock.
I can sell april call 645 against those shares that I own. For this I collect $10.
Since i own 100 shares, I can sell 1x call so my take would be $10 x 100 = $1000
Likely outcomes:
* aapl closes below 645 by April 20th (April option expiration) and I keep the whole 1000 I collected today.
* aapl closes higher than 645 and i am forced to sell my 100 shares at 645 even if aapl selling higher than that.
So, worst case scenario (other than aapl cratering) I get to sell my shares for 645 (so i participate in its climb from 605 to 645) and keep the grand I collected today. How can I be upset at that?
I can always rebuy the stock!
*** Why do this? I basically created my own aapl 1.6%/MONTH dividend. If I repeat monthly it calculates to be 19%/yr. I don't think this would make sense with the weekly options given the volatility of appl of late and the premiums not worth it. I also usually don't like to play the earnings. Still this is a strategy that I believe can put my aapl stock to work. Say I decide to sit out 3 months this is still well over 10% yearly yield (14%ish). The theoretical probability of max profit from selling a naked 645 apr call is 73%.

As with any trade there are risks but in this case the dollars at risk is no higher than me simply owning the stock. Since this is NOT a dividend payout, gains will cost me cap gains taxes.

THIS IS NOT A RECOMMENDATION OF ANY KIND. I ONLY INVEST MONEY I CAN AFFORD TO LOSE.