Since84
Moderator
To infinity and beyond!
Posts: 3,933
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Post by Since84 on Oct 23, 2017 3:12:57 GMT -8
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Post by rob_london on Oct 23, 2017 3:17:24 GMT -8
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Post by CdnPhoto on Oct 23, 2017 3:40:29 GMT -8
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Since84
Moderator
To infinity and beyond!
Posts: 3,933
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Post by Since84 on Oct 23, 2017 4:21:34 GMT -8
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Since84
Moderator
To infinity and beyond!
Posts: 3,933
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Post by Since84 on Oct 23, 2017 4:30:45 GMT -8
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Post by alxyz on Oct 23, 2017 6:23:13 GMT -8
Bottom line to this article "It's really anybody's guess."
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Since84
Moderator
To infinity and beyond!
Posts: 3,933
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Post by Since84 on Oct 23, 2017 7:38:26 GMT -8
Bottom line to this article "It's really anybody's guess." LOL
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Since84
Moderator
To infinity and beyond!
Posts: 3,933
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Post by Since84 on Oct 23, 2017 7:42:36 GMT -8
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Since84
Moderator
To infinity and beyond!
Posts: 3,933
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Post by Since84 on Oct 23, 2017 12:25:53 GMT -8
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Post by rickag on Oct 23, 2017 16:03:11 GMT -8
Actually considering getting into primary care, fascinating.
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Post by phoebear611 on Oct 23, 2017 17:50:34 GMT -8
I gather by now many saw Woz’s interview on CNBC saying that the iPhone 8 was like all the previous iPhones before it and that this is the first time EVER that he won’t be buying the X. He said he wants to “watch it” for a while. Ugh.
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Post by CdnPhoto on Oct 24, 2017 2:15:54 GMT -8
I gather by now many saw Woz’s interview on CNBC saying that the iPhone 8 was like all the previous iPhones before it and that this is the first time EVER that he won’t be buying the X. He said he wants to “watch it” for a while. Ugh. I wish Woz would just learn to keep his mouth shut. The media keep hauling him out like he knows something. He was great in his time, but that was almost 40 years ago.
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Post by rob_london on Oct 24, 2017 3:13:26 GMT -8
I gather by now many saw Woz’s interview on CNBC saying that the iPhone 8 was like all the previous iPhones before it and that this is the first time EVER that he won’t be buying the X. He said he wants to “watch it” for a while. Ugh. I wish Woz would just learn to keep his mouth shut. The media keep hauling him out like he knows something. He was great in his time, but that was almost 40 years ago. IMHO it will have virtually zero impact on iPhone sales. I suspect the vast majority of the current iPhone customer base do not know about Steve Wozniak and his history with Apple.
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chinacat
Moderator
AAPL Long since 2006
Posts: 4,433
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Post by chinacat on Oct 24, 2017 6:01:25 GMT -8
I wish Woz would just learn to keep his mouth shut. I would add John Sculley to that list.
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bud777
fire starter
Posts: 1,354
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Post by bud777 on Oct 24, 2017 8:08:25 GMT -8
One of the few things I have learned over the past few years is that when dealing with options, there is no free lunch. Since options are essentially a zero sum game, every potential reward is accompanied by an equal risk. I consider myself to be still very naive when it comes to options strategies and would like the advice of the board before stepping into something. Please forgive me for using exact numbers, but in this case I felt that it was germane to evaluating the move.
Like many people, I started with a small position in Apple and I have seen it grow to over 75% of my portfolio. I may have helped that percentage by stupid moves elsewhere, but it is what it is. I am retired and cash flow is important, so diversifying into stock paying a higher dividend is probably prudent. Growth is of secondary importance since my children are financially secure (One is a tenured professor and the other is married to a lawyer). However, it is difficult to consider selling Apple, so I decided to sell covered calls. If they were called away, problem solved. If not, I keep the premium.
In January of 2017, right before earnings, I sold 120 January 2019 contracts with a strike of 145. Apple was at 120 at the time and the sale brought in $84,000 at $7 per share. Now the contracts are selling for about $23.00 per share.
I am considering selling 120 additional contracts for January 2020 with a 160 strike. The current ask is about $23. I will use the proceeds from the sale to buy-to-close the January 2019 contracts. This gives me 15 more points of potential growth and a $192,000 loss. Since the sale of the 2020 contracts brings in $$192,000 it is a wash. However, I see several benefits. By extending the strike date, I have a greater opportunity to profit if we have another major drop in price like we did in 2013, by buying back the contracts at a lower price. If we move up well above 160 and the contracts are called away, I have a loss to offset the tax on the gains I would incur from selling the stock. A move that allows me to win regardless of the stock movement makes me very suspicious.
As I said at the start, this is a zero-sum game. I don't want to discover the downside a week after I make the move. What is wrong with this strategy?
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4aapl
Moderator
Posts: 3,679
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Post by 4aapl on Oct 24, 2017 8:41:05 GMT -8
It sounds ok at first glance.
Basically you are selling out your upside. So on the Jan 2020's, you're deciding that selling for the equivalent of $183 is ok. Calling that 2.25 years out, that's about an annualized 6% gain from $157. Not much of an upside, but that's well more than a safe withdrawal rate of 4%, and like you pointed out it gives you a way to make some money if there is a dip. A dip seems likely over 2.25 years, even if it's only a 8-10% dip like we just had.
But by selling your upside, that means that if the stock instead is at $223 at expiration (17% annualized gain), you'd miss out on that extra $40/share. For 120 options, or 12000 shares, that's $480k difference.
Personally, instead of trying to balance the prices now, I'd look at where you think a fair price is for Jan 2020. I'd probably shoot for 10% annualized (possibly even 12%). Looks like that is $195, and sometimes there are premiums or discounts for the "big round numbers", so I'd look at the $200 strike too.
There are 4 things to consider.
One is taxes. It might be better to wait until January to do that, to "lock in your loss", if you don't have things to use the loss against now, and don't want the standard 3k write down each year until you do. (I just finished taxes, and while having all of our dividends taxed at 0% was great, I wasn't too excited when it wanted me to use up various losses, where taking that loss wouldn't benefit us. Like you, we'll have some large gains to use those against soon enough)
Another is that a short call that is in the money has the potential of being called away, especially just before a dividend. I've been hit by this 3 times with AAPL or an S&P option, when holding a bull call spread that was in the money. It should only happen when the time/volatility premium is low, like when deep in the money or about to expire. But that's if everything were logical, which it isn't.
Another is that those premiums on your 2019's are disappearing quicker than those on the 2020's. They're both far enough out that it likely doesn't matter much. But theoretically, the longer you wait to do your conversion, the better.
And a 4th is to remember that you don't have to change everything all at once. Maybe you do half now, and half later. Or a third at the 160 strike, a third at 180, and a third at 200.
I'm not an expert either, and I was in that sort of situation maybe 5 years ago, sometime when I wrote covered calls in January, and then AAPL took off. I missed out on a lot of the run, with the couple thousand shares I wrote calls against.
Good luck
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