AAPL- The Dreaded assignment

This is not investment advice and is intended for entertainment purposes only

If someone is wanting to talk stocks with you, chances are Apple (Ticker symbol: AAPL), will enter the group-chat.

Apple, Inc. is all over the news and is generally regarded amongst analysts as a buy or hold.

My position:

For a longtime, I was dollar-cost averaging into shares of AAPL starting in 2018 when I began to really put my money to work. My average cost was $89 per share and I had substantial gains on the position over the next 5 years.

Once I made the career move to Robinhood from Fidelity, I had the freedom to do something I had previously been restricted from doing: selling covered calls.

At Fidelity, selling covered calls, or doing anything fun with options, was a no-go for someone in my position.

At Robinhood, when it came to options: to each their own.

Thus my love relationship with AAPL was born.

Apple was my star student for a number of reasons:

1. Collecting a premium for selling the covered call on the even lot (100 shares of a stock) I owned

2. Collecting the quarterly dividend since I still held the shares

Hold on… What in the sam-heck is a covered call?

Let me briefly explain before continuing the story:

A covered call is an options strategy where the holder of an even lot (100 shares) writes a contract to sell the shares at a predetermined strike price. The buyer of the call has the right (but not the obligation) to exercise the call if they so please. The seller can collect the premium the buyer pays for the contract (usually more risk=higher premium).

If the market price for the stock crosses the strike price, the buyer of the contract can exercise the call and the writer of the covered call will “sell assigned.” This means the buyer gets to buy the shares of stock at the strike price (even if the market price is above it).

In theory you can use this strategy to collect income on top of your shares. You can sell calls “out of the money” which means the current stock price is not at the strike price for the contract.

Covered calls are often used when someone wishes to hold a stock and does not perceive a major price upward movement in the near future. They can earn passive revenue by collecting premiums on their holdings.

I won’t get too much more in the weeds, but now you understand the basic mechanics and why people love to sell covered calls .

(it’s me… I’m people)

Now back to the story:

The Dreaded Assignment

For close to 2 years I sold covered calls on my 100 shares of AAPL that were very out of the money or conservative. I continue this conservative approach and bring in nearly $1.5k in premium income for literally just holding onto the stock.

On January23rd, 2021, I sold a covered call with a strike at $165 and an expiration date of April, 21st, 2023 for a $93 premium.

That day AAPL was trading at a high of $143 so this felt conservative enough. Given the year the market had in 2022, a 15% climb over the three month span didn’t seem very likely.

(For those that don’t know the market got hammered in 2022)

That’s where I was wrong.

Come mid-April, I’m SWEATIN’.

The price was consistently above $165 hovering around $166-168 leading up until the expiration day, April 21st.

Come April 24th, at the close AAPL is $164.88 but had hit a high of $165.60. I didn’t know if I was out of the woods yet (queue the T-Swift song).

In my two years of selling covered calls using Fidelity, I’d never been assigned. No one on the other side of my contracts had ever excercised - even if the the market price went above the strike!

With that, I had no idea what to expect in terms of communications from the firm.

I go to sleep Friday feeling calm and collected, thinking I had escaped a close call and was not forced to sell assigned (whew!).

I went through the whole weekend assuming my treasured 100 shares of AAPL were sound asleep in my portfolio ready for a new covered call come Monday’s open.

Instead I wake up to this alert in my portfolio on Monday:

🗿

I’m shooketh!

That was WAY more liquidity than I needed in my life… and I really had no idea this happened since I didn’t get alerted until Monday, April 24th.

I wasn’t as slick as I thought.

My star position was sold even through AAPL closed under the strike price on the expiration date.

Post-Mortem

What would I do differently?

Hindsight is 20/20. I would’ve sold at a higher strike price if I knew the markets were going to make a huge comeback over the next three months.

Obviously I didn’t know that.

But honestly I am now working to get another even lot in AAPL and I’m within 40 shares of being back in the game.

Did this change my strategy at all?

Maybe… and it definitely left a sting.

But I’ll be back and this time selling even more conservatively.

Even if Jerome Powell tells us he’s cranking up interest rates like I crank dat soldier boy after he’s done fly fishing in the Snake River in Jackson Hole….

I’m still writing covered calls.