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How to Earn a Synthetic Apple Residual Dividend - Update Part 2

|Includes:Apple Inc. (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 (NASDAQ:AAPL) closed August 19th, 2011 at $356.03.
  • McDonalds (NYSE: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.
Stocks: AAPL, MCD