I wrote a put on Apple Inc. (AAPL) on Monday.
music selection: “Revolution” — The Beatles
I’m getting back to basics with the Big Cheap Tech theme. I am also playing a little defense at least until the market shows signs that it can make and sustain new highs.
The spot price for shares when I wrote my put was 106.18. I went with a 100 strike which was the first strike that offered a minimum 12% annualized yield. The contract is AAPL160129P00100000 which I sold for 2.10. The trade will be in play for 41 days and yields an annualized 18.70%. Importantly, I picked up 7.8% of downside protection for this trade. A roughly 8% downward move in 41 days would be unusual for a slow moving mega cap like AAPL. It can happen but I have a greater than usual amount of wiggle room if the underlying starts to move against me.
That is part of the power of selling options. You can make a return that outpaces the average for the broad indexes with much lower volatility. Some people think options are risky but when you use them right, they provide superior *risk adjusted* returns.
Ravenous lizard playing the home game version might note that the near the money strike was offering a 38.5% annualized yield. I’m always hungry but currently have an appreciation for concept of “enough.” Twelve plus percent will do just fine, thank you.
Merry Christmas and devour your prey raptors!