How We Made 357% (After Commissions) With Calendar Spreads on AAPL in the Summer of 2012 While the Stock Rose Only 13.3%

The following trades were made in an actual brokerage account at thinkorswim by TD Ameritrade.  It is one of eight portfolios carried out by Terry’s Tips for its paying subscribers. Many of these subscribers have the trades mirrored in their own accounts through the Auto-Trade service offered at thinkorswim by TD Ameritrade so they don’t have to place any trades themselves.  Commissions were paid at the regular rates charged by this broker for Terry’s Tips subscribers (no commissions are charged when buying back a short option for $.05 or less).

The strategy employed in this portfolio is not the foundation 10K Strategy used in most Terry’s Tips portfolios.  Instead, it uses what we call the Shoot Strategy (as in Shoot for the Stars) where gains come from a higher stock price rather than from decay of short-term options.  The goal is to maximize net delta while maintaining a barely-positive net theta.  If the underlying stock goes up in price (in this case, AAPL), this portfolio is designed to go up by a greater percentage.  So it is important to pick a stock you really feel good about.  We picked Apple.

We call this portfolio the William Tell - Shoot Strategy, Apple, get it?

At the beginning of the five-week period, at the close of trading on Friday, July 26, 2012, the account was worth $1712 when the stock closed at $585.16. We originally had calendar spreads in place, and we had let the Weekly call options (which were all out of the money) expire worthless on Friday in hopes that we might get higher prices for the Aug1-12 calls sometime during the next week.  Here is what the portfolio owned at the close of trading on Friday (all of the position reports, Trade Alerts, and risk profile graphs which follow are reproduced from emails sent to Terry’s Tips subscribers as part of their subscription):

			William Tell (AAPL)
	Price:		$585.16
	Option		Strike	Symbol	Price	Total
1	Aug-12	C	610	AAPL120818C610	$2.41	$241
1	Aug-12	C	640	AAPL120818C640	$0.49	$49
1	Sep-12	C	620	AAPL120922C620	$6.78	$678
1	Sep-12	C	630	AAPL120922C630	$4.93	$493
					Cash	$252
	Total Account Value					$1,712

On Tuesday, the price had edged up a bit and we placed this trade alert:

July 31, 2012  Trade Alert  -  William Tell  Portfolio

We will take a little money off the table:
 
STO 1 AAPL Aug1-12 610 call (AAPL120803C610) for $5.60

We sold this call because it was the only one close enough to the stock price to generate some meaningful premium.

Note: In our Trade Alerts, the following abbreviations are used:

            STO = Sell To Open
            BTO = Buy To Open
            STC = Sell To Close
            BTC = Buy To Close
            Aug2-12 = Weekly option expiring on August 10, 2012
            Aug-12 = Monthly option expiring on August 18, 2012
            Aug4-12 = Weekly opting expiring on August 24, 2012

August 2, 2012  Trade Alert  -   William Tell  Portfolio

There is no good way to predict when the best time to get set up for next week, but we have had a nice run and might as well do it now: (Note: the stock had risen to $604.)
 
STC 1 AAPL Aug-12 640 call (AAPL120818C640) for $1.83
STO 1 AAPL Aug2-12 620 call (AAPL120810C620) for $3.25
STO 1 AAPL Aug2-12 630 call (AAPL120810C630) for $1.36
BTO 1 AAPL Sep-12 615 call (AAPL120922C615)
STO 1 AAPL Aug2-12 615 call (AAPL120810C615) for $13.26

On this day, we closed out the Aug-12 640 call because it was too far out of the money, we sold the Aug2-12 calls at the 620 and 630 strikes (against our long Aug-12 620 and 630 calls), and used the cash we had collected to add on a new calendar spread at the 615 strike price.

August 3, 2012  Trade Alert  -   William Tell  Portfolio

These trades will get us set up for next week:
 
BTC 1 AAPL Aug1-12 610 call (AAPL120818C610)
STC 1 AAPL Aug-12 610 call (AAPL120818C610) for a credit of $6.05  (selling a calendar)
 
BTO 2 AAPL Aug-12 625 calls (AAPL120818C625)
STO 2 AAPL Aug2-12 625 calls (AAPL120810C625) for a debit of $2.42  (buying a calendar)
 
BTO 1 AAPL Aug-12 635 call (AAPL120818C635)
STO 1 AAPL Aug2-12 635 call (AAPL120810C635) for a debit of $1.75  (buying a calendar)

On this Friday, the stock had gone up to $613 and we sold our only calendar which was in the money (610 strike) and used the cash to buy three calendar spreads at higher strike prices.  The calendar purchases were unusual ones for us to make because the long side (the regular monthly August AAPL options) only had one week more of remaining life than the short side.  We thought that they were unusually cheap at the above prices, so we bought three of them rather than using our available cash to buy a single calendar with a Sep-12 call as the long side.

At the Friday close, the portfolio looked like this:

			William Tell (AAPL)
	Price:		$615.70
	Option		Strike	Symbol	Price	Total	Delta	Gamma	Theta
-1	Aug2-12	C	615	AAPL120810C615	$6.18	($618)
-1	Aug2-12	C	620	AAPL120810C620	$4.05	($405)
-2	Aug2-12	C	625	AAPL120810C625	$2.61	($521)
-1	Aug2-12	C	630	AAPL120810C630	$1.63	($163)
-1	Aug2-12	C	635	AAPL120810C635	$1.07	($107)
2	Aug-12	C	625	AAPL120818C625	$4.78	$955
1	Aug-12	C	635	AAPL120818C635	$2.54	$254
1	Sep-12	C	615	AAPL120922C615	$19.73	$1,973
1	Sep-12	C	620	AAPL120922C620	$17.38	$1,738
1	Sep-12	C	630	AAPL120922C630	$13.38	$1,338
					Cash	$59	48	-6	$52
	Total Account Value					$4,502	1.1%
0					Annualized ROI at today's net Theta:				422%

Results for the week:  With AAPL up $30.54 (5.2%) for the week, the portfolio gained $2,790, or 163.0%.  

The risk profile graph on that day showed what the portfolio should make or lose on the following Friday at the various possible prices for AAPL:

 

August 8, 2012  Trade Alert  -   William Tell  Portfolio

We need to roll over this short call to avoid exercise and our being responsible for tomorrow’s dividend:
 
BTC 1 AAPL Aug2-12 615 call (AAPL120810C615)
STO 1 AAPL Aug-12 615 call (AAPL120818C615) for a credit of $2.88  (selling a calendar)

August 8, 2012  Trade Alert #2 -   William Tell  Portfolio

We need to roll over this short call to avoid exercise and our being responsible for tomorrow’s dividend:
 
BTC 1 AAPL Aug2-12 620 call (AAPL120810C620)
STO 1 AAPL Aug-12 620 call (AAPL120818C620) for a credit of $3.67  (selling a calendar)

With the stock trading very close to $620, the above trades were made to eliminate the possibility of our short calls being exercised and our being responsible for the dividend payable to owners of the stock on the next day.

August 10, 2012  Trade Alert  -   William Tell  Portfolio

These trades will get us set up for next week:
 
BTC 2 AAPL Aug2-12 625 calls (AAPL120810C625) for $.03 (no commission)
 
STC 2 AAPL Aug-12 625 calls (AAPL120818C625) for $3.85
 
BTC 1 AAPL Aug2-12 630 call (AAPL120810C630) for $.02 (no commission)
 
STO 1 AAPL Aug-12 630 call (AAPL120818C630) for $2.20
 
BTC 1 AAPL Aug2-12 635 call (AAPL120810C635) for $.01 (no commission)
 
STC 1 AAPL Aug-12 635 call (AAPL120818C635) for $1.15
 
BTO 1 AAPL Sep-12 635 call (AAPL120922C635)
STO 1 AAPL Aug-12 635 call (AAPL120818C635) for a debit of $9.59  (buying a calendar)

From the August 11, 2012 Saturday Report:

			William Tell (AAPL)
	Price:		$621.70
	Option		Strike	Symbol	Price	Total	Delta	Gamma	Theta
-1	Aug-12	C	615	AAPL120818C615	$9.63	($963)
-1	Aug-12	C	620	AAPL120818C620	$6.40	($640)
-1	Aug-12	C	630	AAPL120818C630	$2.32	($232)
-1	Aug-12	C	635	AAPL120818C635	$1.29	($129)
1	Sep-12	C	615	AAPL120922C615	$20.70	$2,070
1	Sep-12	C	620	AAPL120922C620	$17.95	$1,795
1	Sep-12	C	630	AAPL120922C630	$13.05	$1,305
1	Sep-12	C	635	AAPL120922C635	$11.00	$1,100
					Cash	$839	20	-6	$35
	Total Account Value					$5,146	0.4%
0					Annualized ROI at today's net Theta:				248%

Results for the week:  With AAPL up $6.00 (1.0%) for the week, the portfolio gained $644, or 14.3%.  

The risk profile graph shows that a double-digit gain should come our way in one week if the stock is flat or goes up by as much as $10.

August 13, 2012 Trade Alert – William Tell portfolio

We have become negative net delta:

BTC 1 AAPL Aug-12 615 call (AAPL120818C615)
STC 1 AAPL Sep-12 615 call (AAPL120922C615) for a credit of $10.32 (selling a calendar)

BTO 1 AAPL Sep-12 640 call (AAPL120922C640)
STO 1 AAPL Aug-12 640 call (AAPL120818C640) for a debit of $11.09 (buying a calendar)

On Monday, August 13^th the stock rose sharply, causing us to take off (sell) the 615 calendar spread and replace it with one at the 640 strike price.

August 14, 2012 Trade Alert – William Tell portfolio

We need to get longer:

BTC 1 AAPL Aug-12 620 call (AAPL120818C620)
STC 1 AAPL Sep-12 620 call (AAPL120922C620) for a credit of $10.50 (selling a calendar)

BTO 1 AAPL Sep-12 645 call (AAPL120922C645)
STO 1 AAPL Aug-12 645 call (AAPL120818C645) for a debit of $11.88 (buying a calendar)

A day later, with the stock continuing to climb, we took off the 620 calendar spread and replaced it with a 645 calendar spread.

August 17, 2012  Trade Alert  -   William Tell  Portfolio 

We need to get set up for next week, and get longer as well:

BTC 1 AAPL Aug-12 630 call (AAPL120818C630)
STC 1 AAPL Sep-12 630 call (AAPL120922C630) for a credit of $11.80  (selling a calendar)  

BTC 1 AAPL Aug-12 635 call (AAPL120818C635)
STC 1 AAPL Sep-12 635 call (AAPL120922C635) for a credit of $13.60  (selling a calendar)  

BTC 1 AAPL Aug-12 640 call (AAPL120818C640)
STO 1 AAPL Aug4-12 640 call (AAPL120824C640) for a credit of $4.55  (selling a calendar)

BTC 1 AAPL Aug-12 645 call (AAPL120818C645)
STO 1 AAPL Aug4-12 645 call (AAPL120824C645) for a credit of $4.60  (selling a calendar) 

BTO 1 AAPL Sep-12 650 call (AAPL120922C650)
STO 1 AAPL Aug4-12 650 call (AAPL120824C650) for a debit of $10.46  (buying a calendar) 

BTO 1 AAPL Sep-12 655 call (AAPL120922C655)
STO 1 AAPL Aug4-12 655 call (AAPL120824C655) for a debit of $9.64  (buying a calendar)  

BTO 1 AAPL Sep-12 660 call (AAPL120922C660)
STO 1 AAPL Aug4-12 660 call (AAPL120824C660) for a debit of $8.62  (buying a calendar)  

August 17, 2012  Trade Alert #2 -   William Tell  Portfolio

We have spare cash we might as well put to work:

BTO 1 AAPL Sep-12 665 call (AAPL120922C665)
STO 1 AAPL Aug4-12 665 call (AAPL120824C665) for a debit of $7.83 (buying a calendar)

From the August 18, 2012 Saturday Report:

	Price:		$648.11	William Tell (AAPL)
							Delta	Gamma	Theta
	Option		Strike	Symbol	Price	Total
-1	Aug4-12	C	640	AAPL120824C640	$12.50	($1,250)
-1	Aug4-12	C	645	AAPL120824C645	$9.35	($935)
-1	Aug4-12	C	650	AAPL120824C650	$6.70	($670)
-1	Aug4-12	C	655	AAPL120824C655	$4.73	($473)
-1	Aug4-12	C	660	AAPL120824C660	$3.15	($315)
-1	Aug4-12	C	665	AAPL120824C665	$2.18	($218)
1	Sep-12	C	640	AAPL120922C640	$22.28	$2,228
1	Sep-12	C	645	AAPL120922C645	$19.50	$1,950
1	Sep-12	C	650	AAPL120922C650	$16.95	$1,695
1	Sep-12	C	655	AAPL120922C655	$14.68	$1,468
1	Sep-12	C	660	AAPL120922C660	$12.63	$1,263
1	Sep-12	C	665	AAPL120922C665	$10.80	$1,080	27	-6	$103
					Cash	$394	0.4%
0	Total Account Value					$6,217
					Annualized ROI at today's net Theta:				605%

Results for the week:  With AAPL up $32.41 (5.3%) for the week, the portfolio gained $1071, or 20.8%. 

The risk profile graph shows that we could earn over 20% in the next week if the stock remained flat and a nice profit would result even if it rose or fell by $10.  Actually, we were a little less bullish at this point than we usually are in this portfolio (which is our only portfolio that makes the assumption that the underlying will move higher over time).  This ended up being unfortunate because the Samsung jury awarded Apple $1 billion after the close on Friday and the stock soared on Monday.

August 20, 2012  Trade Alert  -   William Tell  Portfolio

With the stock up again we need to roll to higher strikes:
 
BTC 1 AAPL Aug4-12 640 call (AAPL120824C640)
STC 1 AAPL Sep-12 640 call (AAPL120922C640) for a credit of $10.00  (selling a calendar)
 
BTC 1 AAPL Aug4-12 645 call (AAPL120824C645)
STC 1 AAPL Sep-12 645 call (AAPL120922C645) for a credit of $10.70  (selling a calendar)
 
BTO 1 AAPL Sep-12 670 call (AAPL120922C670)
STO 1 AAPL Aug4-12 670 call (AAPL120824C670) for a debit of $9.85  (buying a calendar)
 
BTO 1 AAPL Sep-12 675 call (AAPL120922C675)
STO 1 AAPL Aug4-12 675 call (AAPL120824C675) for a debit of $9.02  (buying a calendar)
 
August 20, 2012  Trade Alert #2 -   William Tell   Portfolio

With the stock up even more we need to roll to higher strikes:
 
BTC 1 AAPL Aug4-12 650 call (AAPL120824C650)
STC 1 AAPL Sep-12 650 call (AAPL120922C650) for a credit of $12.15  (selling a calendar)
 
BTC 1 AAPL Aug4-12 655 call (AAPL120824C655)
STC 1 AAPL Sep-12 655 call (AAPL120922C655) for a credit of $12.70  (selling a calendar)
 
BTO 1 AAPL Sep-12 680 call (AAPL120922C680)
STO 1 AAPL Aug4-12 680 call (AAPL120824C680) for a debit of $12.07  (buying a calendar)
 
BTO 1 AAPL Sep-12 685 call (AAPL120922C685)
STO 1 AAPL Aug4-12 685 call (AAPL120824C685) for a debit of $11.38  (buying a calendar)

On this day we closed (sold) calendar spreads at four different strike prices and replaced them with calendar spreads at four higher strike prices.

August 21, 2012  Trade Alert – William Tell  Portfolio

With the stock up even more we need to roll to higher strikes:
 
BTC 1 AAPL Aug4-12 660 call (AAPL120824C660)
STC 1 AAPL Sep-12 660 call (AAPL120922C660) for a credit of $12.32  (selling a calendar)
 
BTC 1 AAPL Aug4-12 665 call (AAPL120824C665)
STC 1 AAPL Sep-12 665 call (AAPL120922C665) for a credit of $12.76  (selling a calendar)
 
BTO 1 AAPL Sep-12 690 call (AAPL120922C690)
STO 1 AAPL Aug4-12 690 call (AAPL120824C690) for a debit of $11.45  (buying a calendar)
 
BTO 1 AAPL Sep-12 695 call (AAPL120922C695)
STO 1 AAPL Aug4-12 695 call (AAPL120824C695) for a debit of $10.49  (buying a calendar)

On Tuesday we closed (sold) two calendar spreads and replaced them with them with two new calendar spreads at higher strike prices to keep up with the escalating stock price.

August 23, 2012  Trade Alert  -   William Tell  Portfolio

These trades will start getting us set up for next week:
 
BTC 1 AAPL Aug4-12 685 call (AAPL120824C685)
STO 1 AAPL Aug5-12 685 call (AAPL120831C685) for a credit of $4.15  (selling a calendar)
 
BTC 1 AAPL Aug4-12 690 call (AAPL120824C690)
STO 1 AAPL Aug5-12 690 call (AAPL120831C690) for a credit of $3.28  (selling a calendar)
 
BTC 1 AAPL Aug4-12 695 call (AAPL120824C695)
STO 1 AAPL Aug5-12 695 call (AAPL120831C695) for a credit of $2.51  (selling a calendar)
 
BTO 2 AAPL Sep-12 665 calls (AAPL120922C665)
STO 2 AAPL Aug5-12 665 calls (AAPL120831C665) for a debit of $9.85  (buying a calendar)

In anticipation of possibly weaker prices on Friday (a pattern we have seen for the past couple of months), we rolled over the highest-strike Weekly calls to the next week on Thursday and used the cash to purchase two new calendar spreads which were at the money.

August 24, 2012  Trade Alert  -   William Tell  Portfolio

These trades will get us set up for next week:
 
BTC 1 AAPL Aug4-12 670 call (AAPL120824C670)
STO 1 AAPL Aug5-12 670 call (AAPL120831C670) for a credit of $4.67  (selling a calendar)
 
BTC 1 AAPL Aug4-12 675 call (AAPL120824C675)
STO 1 AAPL Aug5-12 675 call (AAPL120831C675) for a credit of $3.51  (selling a calendar)
 
BTC 1 AAPL Aug4-12 680 call (AAPL120824C680) for $.03 (no commission)
 
STO 1 AAPL Aug5-12 680 call (AAPL120831C680) for $2.71
 
BTO 1 AAPL Sep-12 660 call (AAPL120922C660)
STO 1 AAPL Aug5-12 660 call (AAPL120831C660) for a debit of $10.51  (buying a calendar)

On Friday, we bought back all the Weekly options that expired on that day and sold the next-week Weeklys at the same strike price.  We used the cash to add on one new spread at a price below the stock price since we did not have any at that level at the time.

From the August 25, 2012 Saturday Report:

			William Tell (AAPL)
	Price:		$663.22
							Delta	Gamma	Theta
	Option		Strike	Symbol	Price	Total
-1	Aug5-12	C	655	AAPL120831C655	$14.63	($1,463)
-1	Aug5-12	C	660	AAPL120831C660	$11.60	($1,160)
-2	Aug5-12	C	665	AAPL120831C665	$9.00	($1,800)
-1	Aug5-12	C	670	AAPL120831C670	$6.75	($675)
-1	Aug5-12	C	675	AAPL120831C675	$5.18	($518)
-1	Aug5-12	C	680	AAPL120831C680	$3.78	($378)
-1	Aug5-12	C	685	AAPL120831C685	$2.76	($276)
1	Sep-12	C	655	AAPL120922C655	$24.23	$2,423
1	Sep-12	C	660	AAPL120922C660	$21.45	$2,145
2	Sep-12	C	665	AAPL120922C665	$18.95	$3,790
1	Sep-12	C	670	AAPL120922C670	$16.53	$1,653
1	Sep-12	C	675	AAPL120922C675	$14.40	$1,440
1	Sep-12	C	680	AAPL120922C680	$12.45	$1,245
1	Sep-12	C	685	AAPL120922C685	$10.68	$1,068
					Cash	$323	34	-6	$168
0	Total Account Value					$7,817
					Annualized ROI at today's net Theta:				784%

Results for the week:  With AAPL up $15.11 (2.3%) for the week, the portfolio gained $1,600, or 25.7%. 

The risk profile graph shows that in the following week, double-digit gains would once again be possible if the stock remained flat or rose by about $10 while it could fall by $10 before a loss would start accruing (assuming no adjustments were made).

Over the four-week period, AAPL had moved from $585.16 to $663.22, a nice gain of $78.06, or 13.3%.  Meanwhile, our William Tell  portfolio went from being worth $1712 to $7817 for a gain of $6105, or 357% of the starting portfolio value.

We were pleased that the Shoot Strategy had achieved its objective of considerably outperforming the percentage gain for a stock that had gone up in value.  The downside of this strategy is obviously what happens when the stock falls rather than moves higher – the percentage loss for the portfolio is likely to be greater than the percentage loss in the stock, unless the weekly loss is moderate. 

One big reason we feel the Shoot Strategy is preferable to owning stock in a company you believe is headed higher is that if the stock remains flat, the portfolio can make big gains while the owners of stock would not pick up anything.  For example, with today’s prices of AAPL options, a double-digit gain is often available each week if the stock remains absolutely flat.

If you would like to receive a free Idea of the Week from Terry’s Tips, please go to http://www.terrystips.com/programs-and-pricing/free-newsletter and you will get some interesting other reports as well (we never reveal your email address to anyone).

For complete Trading Rules for the Shoot Strategy, check out Terry Allen’s book: Making 36%: Duffer’s Guide to Breaking Par in the Market Every Year In Good Years and Bad - $9.97 for a paperback version sent by first class mail (use Special Code VAL) or $5.95 for the eBook version - https://www.terrystips.com/programs-and-pricing/making-36-percent.