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Apple (NASDAQ:AAPL) is one of the most widely held stocks today, and for good reason. A partial list of reasons to own the stock this year:

  • iPhone 5
  • iPad 3
  • iTV 1
  • potential stock split
  • potential dividend
  • $100B in cash and growing
  • P/E much less than their growth rate

One strategy is just to own the stock and wait for the market to give AAPL the value it has earned, and will continue to earn. Nothing wrong with that.

Another strategy, which is a bit more conservative and could generate some income while you wait, is to write covered calls against AAPL. Since AAPL trades weekly options there is an opportunity to generate 52 premium payments per year.

ITM, ATM, or OTM?

If you are risk averse and worried about macro market events, like a Greek default, then you could sell in-the-money calls. You'll capture a point or two of premium per week, while giving up your upside on the stock. But if this jives with your world view and market outlook, or if you are just risk averse by nature, you could be happy with this.

At-the-money options always have the highest time premium. If you're bullish on AAPL and don't mind holding the stock long term, writing weekly at-the-money covered calls is how you will maximize your time premium. You can probably get 2-3 points of premium per week.

If you want to leave yourself some room for upside potential on the stock then sell out-of-the-money calls. When trading weeklies that are 5 points out of the money you can probably make a bit more than 1 point or more per week, and if the strike is 10 points out of the money, then probably a bit less than 1 point per week.

Given that AAPL has several major announcements coming this year, many investors are choosing to go with an out-of-the-money premium capture plan, so that they can capture some or all of any pop in the stock price as these announcements are made.

10% And 5% AAPL Dividend

If you want 10% yield from AAPL you will need $48.37 in time premium per year. Divide by 365 and that's 13.3 cents/day. So what options have 13.3 cents/day or more in time premium? At the moment these two AAPL dividend type covered calls meet that requirement:

AAPL 10 Percent Dividend

If you want even more upside potential, lower your annual yield goal to 5%. That would be 6.6 cents/day, and these two covered calls meet that requirement:

AAPL 5 Percent Dividend

For those worried about putting a cap on your upside, it's worth pointing out that these are 9-day and 37-day trades. So you're only capping your upside to 21% or more for 9 days, or 26% or more for 37 days. Since there are no earnings coming out during this time frame, it's a reasonable cap.

If you're sitting on AAPL shares and not writing these kinds of calls each week then you are leaving money on the table each week.

Source: Collect Yield On Apple In Advance Of Dividends