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Todd Johnson
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Updated: 05.05.13 Hello, My name is Todd Johnson. I’m a family man, sports fiend, health nut, technology buff, long-time stock investor and a very lucky mountain climber – hardly enough to completely distinguish me from many 50 year-old males living in Albuquerque, or anywhere else for that... More
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  • How to Earn a Synthetic Apple Residual Dividend - Update Part 2 3 comments
    Aug 20, 2011 7:57 PM | about stocks: AAPL, MCD
    This is a humbling follow-up article to "How to Earn a Synthetic Apple Residual Dividend". I knew the risks, bought the ticket, took the ride, and have a painful net loss on the position. Nevertheless, I'll state the cumulative net gain and net losses on the entire transaction.

    Monday Morning Quarterback:
    One can say a buy-write strategy in this market is not appropriate. I can not, in hind sight, disagree as the data proves your point. I have confidence in two stocks: AAPL, and MCD.  AAPL is selling at a 10x P/E multiple. They possess a clean balance sheet. They are, however, on the top of many indices that are being sold off due to their market cap.

    If I owned a weaker stock, in retrospect, I would have used a collar option trade with a long put option. As the facts sit right now, I am comfortable selling a September $360 covered call against my position.



    August 19th, 2011 Option Expiration Data:
    • Apple (AAPL) closed August 19th, 2011 at $356.03.
    • McDonalds (MCD) closed August 19th, 2011 at $87.23.
    • I continue to own 400-Shares of AAPL.
    • The short 4-AAPL $400-August covered cells expired worthless on Aug 19th.
    Actions Taken:
    1. I sold 4-AAPL Sep 2011 360.000 call (AAPL110917C00360000) at $16.00 per contract. Net credit was $6,400. 
    2. I retain 400-Shares, Apple, with a current unrecognized net loss of $15,788.
    3. I used the $6,400 to purchase 73-MCD shares.
    Net August 19th close-of-business Positions:
    • I remain long 400-AAPL common shares,
    • I am long 111-MCD shares plus. I entered August with 38-MCD shares. Net MCD shares is [38+73=111-MCD shares]. Total cost = {[38-MCD @ $3,340] + 73-MCD @ $6,400] = $9,740 cost basis} for long 111-MCD shares.
    • Average cost for 111-MCD shares = {[$3,340 + $6,400 = $87.75 pps]}.
    Apple Views:
    The market is lacking leadership with broad market declines. Apple (AAPL) is delivering products, revenues, earnings, and owns a strong balance sheet with $76-cash per share.



    The earnings projections continue to be overwhelming convincing to remain long AAPL. The past 15-years have reiterated the position. A net 33.4% total annualized rate of return is a very impressive performance versus a SP500 4.5% total annualized rate of return over the same time period.



    Disclosure: I am long AAPL, MCD.
    Themes: Investing for Income, Income Investing Strategy, United States Stocks: AAPL, MCD
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  •  
    I should add that my stop-loss on this position is if AAPL breaks $330. I will sell shares, and buy back the September covered calls.
    21 Aug 2011, 02:07 PM Reply Like
  •  
    Todd

    Are you going to let your AAPL shares be called away or roll them forward into October?
    14 Sep 2011, 10:16 AM Reply Like
  •  
    Hello my friend,

    I will roll them into a $380 or $390 or $400 October, and buy back the September.
    I want aapl common for long term. Just trying to make a few quid on options. ;)

    Where have you been? I love hearing your insights.

    Best, Todd
    14 Sep 2011, 03:05 PM Reply Like
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