Much has been made of the volatility index of late, as it closed at a record low not seen since December 22 ,1993, when it reached 9.31. By comparison, the VIX’s historical average is 20.
Caveat: Biotech’s were weak on Monday…….
Easing concern over political risk in Europe, with a Macron win was evident in the Heat Map for International Countries that we noted in Sunday’s Weekend Video Newsletter. These things combined with solid, U.S. domestic corporate earnings and optimism over the global economy, has skewed sentiment toward riskier assets. The S&P500 alone has seen earnings grow 12.5%, during the first quarter. Its best performance since 2011.
Yesterday we saw Apple bolt to fresh all time highs; so, what’s an investor to do? My advice is change nothing and continue using a strategy in every trade or position you take. Learn more here:
Apple Income Trade
Bollinger Bands are expanding rapidly, as volume expands to above average levels. With the stock in such a bullish configuration, many of you have voiced the desire to hold your shares. STO, MACD and RSI show the bulls are in control.
Why not sell some covered calls? You can always buy the shares back. This assumes you own 1000 shares.
If you are bullish on Apple’s potential, you could generate $830 by trading covered calls. You could sell 10 contracts of AAPL 2017 16-JUN 160.00 CALL. If the stock were to rise further before expiration, you’d be assigned and you could make a profit of $7,820. This trade will also provide 0.5% worth of protection (your break even point)for your stock.
Since many of you have owned the stock from lower levels, this won’t apply to you.
- Premium received: $830
- Potential Profit if Stock is > 160.00 at expiration: $7,820
- Break Even/Stop: 0.5%
If you are neutral on Apple’s potential from here, you could generate $2,110 by trading covered calls. You could sell 10 contracts of AAPL 2017 16-JUN 155.00 CALL. If the stock were to rise further before expiration, you’d be assigned and you could make a profit of $4,100. This trade will also provide 1.4% worth of protection (your break even point) for your stock.
- Premium received: $2,110
- Potential Profit if Stock is > 155.00 at expiration: $4,100
- Break Even/Stop: 1.4%
- Implied Volatility 16.1931
- Gamma 0.0482
- Vega 0.1886
- Delta 0.3897 – Your probability of being assigned is slightly higher at 39.7%
- Theta -0.0418
- Rho 0.0596
We’ll look at some more trades today, for potential income.
Congratulations if you’ve held your Apple shares. As with any company where see a bright future, we would also like to obtain income from our positions along the way. Consider trading covered calls on any stock you wouldn’t mind owning.
Happy Trading – Vinny
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