Seeking Alpha

Todd Johnson's  Instablog

Todd Johnson
Send Message
Updated: 09.01.13 Helping Investors Generate Monthly Dividend Income A. Dividend Lab 30-Day Free Trial: http://dividendlab.com/trial B. Products: http://dividendlab.com/products/ Hello, My name is Todd Johnson. Iā€™m a family man, sports fiend, health nut, technology buff, long-time stock investor... More
My company:
Todd Johnson - DividendLab.com
My blog:
DividendLab
  • 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.
Back To Todd Johnson's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (3)
Track new comments
  • Author’s reply » 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
  • Author’s reply » 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
Full index of posts »
Latest Followers

StockTalks

More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.