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Paul Zimbardo
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DISCLAIMER: Each article or comment written by this author is intended as general information only, and is not intended to provide specific advice, or due diligence to be relied on. As such, the information presented in any article or comment does not consider any reader’s personal investment... More
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  • How To Generate Income From Apple 0 comments
    Jan 27, 2013 5:36 PM | about stocks: AAPL

    I have been long Apple for years and I utilize conservative covered calls to simultaneously generate income and reduce your effective cost basis. Selling out-of-the-money options to generate weekly income is ideal for long-term investors because if you are comfortable owning the stock, there is no potential for additional loss versus outright ownership. Options may sound complicated but the risk/reward profile for covered calls is simple: relative to a long position, selling a covered call means that you are willing to sacrifice some capital gains if the stock appreciates considerably in return for guaranteed income. Essentially this means you are willing to trade-off potential upside for a reduced downside. Investors who have utilized this strategy during Apple's recent decline have at least cushioned the blow and mitigated their losses.

    This is not a strategy based on speculation or complex technical indicators - this is a strategy for long-term investors to capitalize on volatility. For reference, please view the first and other articles in the series to understand the strategy and its potential returns. Even if you have no plans to engage in the options market this is your one-stop primer for the critical Apple developments. Even if Apple is one of your core holdings you should understand the various legal, product, and competitive developments that could materially impact the stock's future performance.

    Weeklly I present three possible scenarios and the potential returns for the Apple options:

    · Apple Down 5%

    · Apple Unchanged

    · Apple Closing at 50 Day Simple Moving Average (NYSE:SMA)

    The first scenario represents a negative outlook for Apple while the final two scenarios are more reasonable. These scenarios are forecasts and there is no guarantee that they will come to fruition. Even if you are optimistic it is important to consider both positive and negative circumstances in order to stress your assumptions. As a general rule, selling calls with higher strike prices has greater potential return but additional risk of loss due to the lower (or lack of) downside protection. For more information on the fundamentals of covered calls, consult Investopedia.

    Other resource:

    New Insights on Covered Call Writing: The Powerful Technique That Enhances Return and Lowers Risk in Stock investing by Richard Lehman

    Alan Ellman's Complete Encyclopedia for Covered Call Writing by Alan Ellman

    DISCLAIMER: Each article or comment written by this author is intended as general information only, and is not intended to provide specific advice, or due diligence to be relied on. As such, the information presented in any article does not consider any reader's personal investment objectives or financial situation; therefore, no article makes any personalized recommendations.

    Investment strategies or securities mentioned in any article are not suitable for all investors. The risk of loss in trading securities, including options, and futures can be substantial. Options or other transactions could involve complex tax considerations that should be carefully reviewed and considered along with each reader's personal ...More financial situation and all other relevant risk factors prior to entering into any transaction.

    While I believe the information provided in any article is reliable; however, I do not guarantee its accuracy, timelines or completeness. Financial information changes daily and articles are not updated for subsequent changes in financial position or share prices.

    Past performance referenced in any article is no guarantee of future performance. You should always consider the risks of investing in the light of your personal circumstances and your due diligence should include consulting with your professional advisor.

    The opinions expressed in any of my articles or comments on this website are my own and do not necessarily reflect the views or opinions of any third party. I am not responsible for actions taken, or not taken based the content of this site.

    Disclosure: I am long AAPL.

    Stocks: AAPL
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