A Covered Call Play in Sideways Trading AAPL

Many of you own Apple Inc. (AAPL) stock. Although it has not been the best performer over the past few months, there is always hope that the stock will move back to its recent highs set in October 2018. But what is more interesting to me as of late is how the stock has pretty much hung around the $170 level at the time of this writing. As an owner of the stock, there is not much you can do to make money if the stock trades sideways, but an option trader knows how.

Take a look at a recent chart of AAPL. This is a 15-minute chart, but you can see how the stock has pretty much traded in a channel.

As a knowledgeable option trader or investor, using a covered call when the stock is trading sideways may make perfect sense. A covered call is owning stock and selling a call option that is usually out-of-the-money (OTM). Generally, an investor will sell a call for every 100 shares.

Here is a recent trade idea we looked at in Group Coaching for holders of AAPL shares. At the time, you could sell a 175 strike, which was about $4 higher than the current price of the stock, and bring in $1.28 worth of premium with about 2 weeks to go until expiration as seen below.

As the week wore on, the stock continued to trade sideways and actually was down a little about a week later. As you can see below, even with another week left until expiration, the call option could have been bought back for $0.30 yielding a profit of $0.98 (1.28 – 0.98) or $98 in real terms. Not bad for the stock essentially doing nothing.

Not every covered call will work this efficiently, but when a neutral to slightly bearish forecast is out there, selling some premium to increase profits may not be so bad. Consider it next time you have the chance.

John Kmiecik, Market Taker Mentoring

Trader Education