So after a few days of mulling a crazy idea I had in my head I pulled the trigger.
I bought 1000 shares of APPLE and even worse I bought it on MARGIN !!!!
Yes I am bananas! The trader in me has been itching. Yes I am my own worst nightmare.
But wait! Dont I already have 600 shares of Apple?? Why yes I do and it is nestled in my retirement account.
SO what am I gonna do with 1000 more shares? Write short term out of the money calls until it hits at a profit. Isnt this quite risky? Yes it is. Stock could tank and I take a beating.
So on a sunny August 5 of 2014 midday I bought up 1000 shares at 94.86 in my taxable account on margin. I then wrote an August 22th strike call at $99 call for .52 cents on all 1000 shares giving me back basically $500. Also purchasing these shares I squeak in and steal this quarters dividend with the ex-dividend date only being 2 days away. Those 47 cent per share dividends will give me another $470 as well.
I am hoping by writing these short term calls that the strike price will eventually hit in 2014 giving me a quick 5% gain and thus closing my position. If shares don't strike I plan on writing more covered calls 5% over my purchase price until they do. I think for sure Apple shares will reach $100 at some point this year easily so that is why I am making this BOLD move.
Apple will be releasing a much anticipated iPhone 6 model equipped with a larger 4.7 inch screen and various other enhancements. It is poised to be the best selling iPhone yet and on top of that their global reach into new markets has continued to expand. Also rumors of an even larger iPhone 5.5 inch have surfaced as well as a new product of an iWatch of some sorts. Overall its an exciting time for Apple and many analysts have Apple rated as a strong buy with a value like 15 p/e ratio right now.
I dont advocate anyone make this type of move. You guys can watch me fail or watch me win on it. Yes its a risky move but I dont mind the risk really.
In fact in 2007 I made a similar type but even more crazy risky move. I bought over 10,000 shares of Nintendo at $33 and held on and watched it go up towards $80 and then me finally selling a year later at around $55. Learned a lot there. Have and exit point and stick by it! Also don't put all your eggs in one basket. So Thats my plan with APPLE and writing options see I tend to the exit plan.
This entirely doesn't fit with the get rich slowly principal of dividend investing. I have decided not to touch my dividend portfolio to do this and I am treating this trade separately than my regular portfolio. I am even treating it separately to my other 600 Shares of Apple in my retirement portfolio In which I have more of a long term outlook for.
I want to be held accountable for my trades and me putting it on here acknowledges it.
So how crazy am I?
Put me on Blast for my actions! I deserve it!
Sounds like a solid strategy AG :) I don't see a lot of long term risk here because Apple is fundamentally a great company. I also buy stocks on margin and write covered calls on them. Although I use less expensive companies like Trican, ($15/share) and I only trade 1 contract at a time lol. But since you have more capital it just makes sense to go for a bigger name like Apple where the option spreads are much more potentially lucrative (^_^) Do you plan to increase your options duration (like 1 to 2 months away) but of course still be out of the money? It could improve your premiums, but will also increase the chance of an option being exercised.
ReplyDeleteWith interest rates at record lows and the financial markets showing signs of being over extended, retail investors like us are forced to chase ever more obscure and creative investment strategies to find predictable yield. Personally I'm bullish on AAPL so I think you will make a good profit with this plan. Good luck!
My option strategy right now is write real short term calls like every 2 weeks. Once around sept oct if I am not called out by then I will extend the period of calls to 1-2 months to get some larger premiums. Depending on the direction of the stock I see myself writing calls in the $100-105 range if this 99 does noes hit. Eventually I do want to be called away. I am just trying to maximize my profit in doing so lol. I just want to walk away with 5-10k with this move essentially.
DeleteAG,
ReplyDeleteThere is no doubt that you are crazy! Crazy like a fox that is. One of my coworkers has been making a killing with Apple options all year. He is up about $50k so far. Hopefully you ring the bell.
MDP
You gotta pay to play! Options not for everyone that's for sure. Such a mixed bag of emotions. You want stock to go up but at same time you want it just under strike to write again lol. I am no options wizard so that why I stick to covered calls. I have a shorts account but I dont want to venture that route just yet.
ReplyDeleteHey A-G,
ReplyDeleteAPPL is a very good stock to hold right now. I am with you all the way on your investment here. I don't know much about how options work, but I am buying AAPL every week before the price hits the $100 mark. Thanks for sharing your daring investment. Good luck!
Look into some basic options videos. Once you get it it will finally click in like it did with me. Best of luck man.
DeleteGreat strategy, A-G. I have been thinking of buying AAPL for the past few days - since it is now turning into a dividend growth company.
ReplyDeleteOut of curiosity? Who do you trade with? Im asking because Ive been looking into opening a margin account. My main trading account is with Questrade and their interest rates sound ridiculous (prime + 3%) - not sure if its the same elsewhere.
I use TD Bank web broker to trade my primary account. Margin rate is 4%. I also use BMO investorline and scotia itrade. Td is my favorite and Bmo is not bad too. Bmo just started new promotion if u put 100k in. 25 free trades and $250 free cash.
DeleteMight be worth it to trade around some capital to take advantage of some deals. But hard to beat questtrades cheaper trades.
not crazy, but timing is poor. There were great times to be risk on with AAPL just this past year.
ReplyDeleteInstead, I think you got bored with the summer doldrums and needed to add adrenaline to your investments. I say this because I did a similar thing with MU recently. I think we will both do alright, but I think the time to do this sort of thing was last year. Maybe that is hindsight. Good luck to us both.
Yes indeed. Not the best entry point but bullish outlook changed my minds. Crosses fingers and toes!
DeleteWow very gutsy move. I'm bullish on Apple as well so hopefully it will pay off for both of us.
ReplyDeleteCome on down you are the next contestant on the price is right!
DeleteA-G,
ReplyDeleteWow, bold move! But based on your net worth and your other assets I think you'll be just fine either way. Hope you make some good money here. :)
Best wishes!
Time will tell! Will be filet mignon if things go through or mac and cheese if they dont. Or just both cause who doesnt like mac and cheese!
DeleteGood luck with your trade! Things like this, although speculative, excite me. I have a little bit of a gambling side, that's why I have the options account to satisfy that need. I wish you good luck!
ReplyDeleteYou should see me in a casino! Not good I tell ya!
DeleteI guess nobody wants to be negative, but I'll step up to the plate if no one else will. I actually like Apple as a company, and the stock does not seem unreasonably valued for the long run. I suppose some people will be aghast at the position size, but I note you are putting less than 5% of your net worth into one of the largest companies in the world, so I am not too worried. What concerns me is the asymmetric payoff of the position, coupled with margin debt. If the stock tanks 20%, the short calls will do little for you, plus your losses will be magnified by leverage. But if the stock rallies 20% (or even 50%), your gains are clipped at 5%.
ReplyDeleteOf course, on any given occasion, this strategy may work, but it's unlikely to be a long-term winner. I've seen a lot of people keep rolling down the near month call each month as the stop drops, for example, to $90, $85, $80, $75. Then when the stock suddenly surges to $120, it's called away back at $80. Remember that put-call parity is always your insightful friend. Call - Put + Cash/Bond (Strike) = Stock. Thus, a covered call is equivalent to holding the strike in risk free cash plus a short put. You are also on margin, so we can subtract the cash. So your position is equivalent to writing uncovered $99 puts on Apple. Is this really what you want to do?
I do not wish any ill on you. I hope things work out for you in this instance! But I also hope you don't make a habit out of this strategy.
Thanks for your insight. What you are saying makes sense. No I do not plan on making this a long term strategy. I plan on making this a short term holding. By hedging at a certain above cost price point I am planning an exit strategy. I have a plan and I want to stick with it instead of letting it ride which I have done in the past with varied results. I also have a loss plan intact if things were to go south within a few months. My margin rate is at 3.5% and dividend is at almost 2% so the leverage is not a huge factor right now but can be the more time passes.
DeleteIn the future I will probably not make these types of trades as they are overly risky. This is a from the gut trade and they dont happen often!
Bought back my calls at 30 cents. Gonna let it run a little bit before I sell some more calls
ReplyDeleteSo You take your cards of the table and keep the stock. Is that it? Thanks
ReplyDeleteYes essentially. Bought my own call back for cheaper on the dip.
DeleteSold 10 August 29th 99 strike calls at .73
ReplyDeleteSell 10 AAPL C 29AUG14 99.00 $0.73 13-Aug 13-Aug Filled 10
That's actually pretty clever--buy now and wait for Apple's stock to inevitably blow up after announcing the new iPhone. Then, sell when the hype is at its height, and make a quick profit! That's how people get rich using the stock market! (That's also how people lose everything, when they get greedy and outsmart themselves...just don't do that. Announcement of iPhone 6 --> wait a couple hours --> sell)
ReplyDeletebuy on the rumor sell on the news I think they call it. Its 5% gamble of my net worth so its a measured move.
DeleteA bold move by any measure. Look forward to the updates to see how things pan out. I never bought anything on margin and play the old conservative way... invest what I have. In retrospect, margin trading over that last five years could have retired you but with the market at these lofty levels it kind of scares me. Thanks for sharing.
ReplyDeleteYes things do look frothy in general but lots of room for this bull to run with Apple and their main cash cow to outperform. More of a short term product play than a long term outlook.First time really delved into margin before so its kinda a different experience playing with leverage. Kinda a test to see how comfortable I am with it for future moves.
DeleteCan’t say buying such amount of share is a smart move, but as long as you are considering to create a separate portfolio it might help you in creating that.
ReplyDeleteThe information you have posted is very useful. The sites you have referred was good. Thanks for sharing..
ReplyDeletewhere to sell my iPhone