Wednesday, April 18, 2012

A myth of an ITM short call $AAPL

going to answer a repeated question. i have jan2014 DITM calls on AAPL, selling out of the money short calls against it for income..just like a covered call with stock. stock took off last few months so month to month i have been rolling that short call up in strikes every month..gaing 15-20 points each month.. so currently have the May 585 short calls.

the question/comment i get is "you are not making any money with the short call being so far in the money"

not true. with stock at 610, the may 585 is going for $45 ($4500). 585+45 = 630 at a glance you can see this call has $20 of time premium. if stock stays at 610 at may opex then that $20 goes to zero.. and i keep that $2000. Then close out the short call and roll to something in June based on my thesis. I didnt plan for the short call to be in the money but now that it is i am still able to profit, plus that $45 gives me quite a bit of downside protection on sell in may and go away movement.

Point is you do not "HAVE" to sell your short call out of the money when doing diagonals or covered calls. you can still profit on ITM calls.