Apple's Bullish Trend After A Dip Offers Chance to Sell Puts For Premium Income

AAPL appears to be bouncing after a dip. It is where selling AAPL puts for premium income often is done.

By Donald E. L. Johnson

Cautious Speculator

• Apple is rallying after a small dip.

• Selling puts is a bullish trade that should be done when you are willing to own the stock.

• Ways to sell AAPL puts are discussed.

Apple continued its move higher Monday and is showing good bullish momentum.

On Monday, we discussed trading AAPL covered calls. Today, we’ll look at selling AAPL cash secured puts (CSP). Apples puts and calls options are very active, liquid and deep in terms of the number of strikes that are actively traded.

Selling puts is a bullish trade

Selling puts is a bullish trade that is most often done on bullish stocks and exchange traded funds (ETFs). CSP trades are considered the equivalent of covered calls trades. Both are done to generate premium income. To sell puts, traders must have enough cash to fulfill margin requirements that cover the cost of buying a stock if its puts are assigned and sold to the trader.

This blog looks for covered calls and puts trades that when combined with dividends provided over 10% annualized returns on risks. Because many of the calls trades are designed to produce small, short term capital gains along with the premium income, the annualized income for a diversified covered calls portfolio can average over 15%. Similarly, a diversified puts portfolio’s average income can be over 10%.

Combined, covered calls premiums plus puts premiums plus dividends plus some capital gains on covered calls trades when the stocks are called can generate average annualized income that is around 20% or more of the average prices of the stock or ETF when options trades are filled.

Those are our goals. They are not promises nor guarantees, because we can’t predict stock prices or volatility or trading skills. No one can.

These trades can be done in taxable and tax sheltered accounts like IRAs. Trading covered calls and puts frequently can be a full time business and job or it can be treated as a side gig or second job. After a trader finds stocks that he or she wants to trade frequently, it usually takes only a few hours a week to plan and make trades.

When you work for a living and make a certain amount of money, you pay income taxes. When you make money trading in a taxable account, congratulations. You pay income taxes, which is better than the alternative. It’s the cost of doing this kind of business.

Possible AAPL puts trades

Apple closed Monday at $174.83, up $3.17. It’s 52-week high was $182.94, and its 52-week low was $116.21. Support is around $160. Resistance is about $183.

Generally, income traders like to sell puts on dips in a stock’s price, which is where AAPL is. It’s about 3% below its 52-week high.

If a trader wants a quick and small discount on the stock and wants to take assignment on the stock (buy it), consider selling AAPL 2.25.22 (16 days) $170 strike (delta -.29) puts for about $1.89, or about a 21% annualized return on risk (RoR).

Traders who want to buy AAPL at a bigger discount at the strike price could consider selling AAPL 2.25.22 $160 strike (delta-.10) puts for about $0.56, or about a 6.72% RoR annualized.

A longer duration trade involves less visibility for the markets and the stock’s price, and it gives a trade more time to produce a nice premium or a nice discounted net debit price if the stock is assigned (sold) to the trader upon expiration.

For example, a trader might sell AAPL 3.18.22 (38 days) $165 strike (delta -.25) puts for about $2.57 a share. That would produce an annualize RoR of about 13.7%, give or take depending the prices of the stock and options when a trade was filled.

Closing trades

Sometimes traders change their minds about whether they want to have a puts trade assigned to them. They can close their options trades by buying back the puts, preferably at a profit, but sometimes at a loss.

If a stock is put to a trader interested in generating income from portfolios of puts and calls, the trader then can then sell covered calls on the stock until it is called.

That is when the trader decides to continue to doing what are known as “wheel” trades, which involves selling covered calls on a stock when puts are assigned and selling puts when a stock is called.

It is better to have small (one contract per trade) covered calls and puts options trades on about a dozen stocks than to do one large trade. Diversifying risks in options portfolio increases the probability that every month will be profitable. One bad trade usually won’t ruin the month.

It is not a good idea to sell puts on a stock that you don’t want to own.

Question: Will you hold or buy AAPL? Do you buy, sell or sell its puts and calls?

LINKs:

Home Page. See previous articles on other stocks.

Calls vs Puts Options: What’s the Difference?

Beware

Like all investing, trading stocks and options is risky. If you can’t sleep with market risks, you might want to let someone else do your trading. Consider an option trading ETF like XYLD, which I own. I also trade its calls and puts. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I own don’t own or have options  on the stocks mentioned in this article.

@realDonJohnson. I’m active on twitter where I tweet about trading and other things and link to tweets about stocks that I like.