Traders have given income investors a gift. By crushing a company growing profits almost three times faster than Google, with more cash than most of the S+P 500 put together and after you take cash into account selling at a 50% discount to the S+P 500, traders have created enormous volatility. That volatility means the premiums traders re paying for options are borderline immoral. It is time to take their money. All we do in my service Options Income Blueprint is take the cash options buyers are willing to put up to take on risk. If you like these strategies remember these assumptions – you need to own or perhaps could end up owning the stock. That being said, do not turn away, if you have limited capital there is a strategy for you.
Strategy One – If You Own Apple – Potential Annual Return, 27%
Let’s say the stock is around $453. You can sell a weekly $460 call that expires this Friday after the close and net around $250 per contract. Do it fifty times a year – take two weeks off to watch the Washington Nationals run through the playoffs and win the World Series – and you bring in $12,250. That is a return of 27% if the stock foes not move. If it does - it will – you have to roll the calls forward or buy them back at a lower price and sell them again.
Strategy Two – If You Do Not Own Apple – Potential Annual Return, 31.25%
Look at $440 as the technical support price and sell an Apple $440 put that expires after the close this Friday. Do this only if you are a) willing to own the stock at $440 and/or b) you are willing to roll the put into a later strike price should the stock go down. You should get around $265 per contract a return of 0.625%. Do it fifty times a year and your return is 31.25%
Strategy Three – Sell a Call Against a LEAP – Potential
This strategy involves real risk. Not much, but it is real. And this is what you can do if you have limited capital, are an Apple bull and want to generate cash.
Step One: Buy an Apple January 2014 $450 LEAP for around $45. You now have the equivalent of the stock in your account. You can use that to sell weekly or monthly calls. If you sold the weekly call that expires this week at a $470 strike price, you net about a buck or $100 a contract. Do it for eleven months you generate around $4,700 in cash - using $4,500 in capital. No kidding. Of course if the stock tanks, you could lose all the value in the LEAP. But if you do, and you can sell those calls, and if the stock is moving south you should be generating far more than $4,600 in capital, you can still make a profit.
Think about it. Apple is on sale. And you don’t have to own it to generate very high yield.