Apple doesn't provide much in the way of dividends. But savvy investors can create their own yield from Apple stock using this covered call option strategy.
Turning Apple Stock Into An Income Stock
A covered call involves buying 100 shares of the underlying stock and simultaneously selling a call option against those shares.
It creates an income stream for you in the form of the option premium you collect. The investor keeps the premium generated from selling calls no matter what happens with the stock.
What's the catch? Selling the call limits the upside potential of your stock appreciation.
Right now, that might not be as big a risk. The ratings for Apple aren't the stellar stats they once were. According to IBD Stock Checkup, Apple stock ranks No. 3 in its group and has a Composite Rating of 62, an EPS Rating of 94 and a Relative Strength Rating of 28.
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When trading covered calls, most investors sell monthly calls against their stock. Since the effects of time decay accelerate as expiration approaches, time passing strongly works in your favor. You just collect the income month after month.
That makes a lot of sense but also requires a lot of active management.
What if we sold yearly covered calls against Apple? Let's take a look.
Yearly Covered Calls
If we went with a longer time duration, we could bring in a larger premium up front and just wait.
For AAPL stock, a March 21, 2025 call option with a strike price of 185 is trading around 15.75 today. That brings in $1,575 in premium per 100-share contract.
Purchasing 100 shares of Apple stock costs around $17,550. Part of that cost will be offset by the $1,575 option premium received. When you think about it, it's almost like you got a 9% reduction in your cost basis.
Or put another way, you've created a 9% yield for the stock.
That sure beats the dividend yield on most stocks in the current market. While you are sacrificing upside potential to receive the premium, you're still giving yourself some participation that tops out at $1,000 in capital appreciation.
Investors would need to weigh the pros and cons of the stock before initiating a bullish trade like a covered call.
It's important to remember that options are risky and investors can lose 100% of their investment.
This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
