I currently own some stocks in my portfolio that I wish to hold for long-term investment as well as do short-term trading using the Wheel strategy and earn a sideline income every month.
One of the stocks is Apple and in this article, I will share my thoughts on why Apple may seem like a very strong and stable company but it is not generating good returns for options trading (from the seller’s perspective).
The rest of my stocks in my portfolio can be seen in this below table:
To understand why Apple is not generating returns for options contract sellers, we need to understand the concept of Implied Volatility (IV). Implied Volatility (IV) refers to the probability of the fluctuation in the market price of a stock, in short, it is a prediction of how volatile the stock can be at a certain point. The higher the IV, the more volatile in price movement the stock is expected to be.
So, for stocks with a higher IV (more volatile), the seller can command a higher premium as he is bearing higher risk of the price movement not going his way. For fundamentally great companies like Apple, they are usually very stable and price volatility is very minimum. It is very unlikely to see the world’s most valuable company drop by 50% or rise by 50% in a few weeks.
Looking at the 5-year price movement of Apple, you can tell it is slowly and steadily increasing over the years.
If you compare the IV chart for the last 180 days of Apple, it is around 20 to 30 plus percent.
You know this range is low IV when you compare with the other stocks in the S&P 500 stocks. The most valuable and second most valuable companies in the world, Apple and Microsoft, are ranked 2 of the lowest in the IV table.
If you want to see a high IV (highly volatile) stock, this graph below for AMC stock is for your reference:
Therefore, for a low IV stock like Apple, whereby the volatility and probability of price fluctuation is low, the options will not be able to command a higher premium and thus earn a lower return on the premium contract, whether it is selling PUT contract or CALL contract.
Which Stocks Are Good For Options Trading?
Having said that, Apple is still a stock to invest and hold for the long term because it is a fundamentally great business, growing profits every quarter, and has huge cash reserves. But when it comes to options trading, I would prefer to sell options contracts on higher IV stocks such as Tesla, Nvidia or Palantir. But it is worth noting that while higher IV stocks generate higher returns, it also comes with a higher risk of the options contract not going your way and getting the contract exercised. So, do weigh your risk accordingly.
Keen to learn about options trading but do not wish to pay for expensive courses, this newbie guide will help gain the knowledge and fundamentals to understand options better. And it’s totally free!
The Newbie’s Guide To Options Trading
The LEAPS Strategy has helped me make more than USD120,000 in 2021. Here’s all you need to know about this strategy that can help you increase your wealth exponentially:
The Ultimate LEAPS Options Thread
Looking for ideas on what stocks to invest in or which stocks to trade? You can take reference from what I have been buying or selling. I try to update them as soon as I can in this section, as well as share my thoughts behind executing these trades:
Excited to start your trading journey or perhaps try out with a paper trading account to build your confidence in trading? Check out this step-by-step to help you get started:
How To Buy Options on Interactive Brokers (Step-By-Step)
If the bear market in 2022 is making feel depressed as your stocks come tumbling down, read this article to find out how you can use options trading to help you claw back some of your losses as you await market recovery:
How I Do Earn Even When The Stock Market Is Bearish?
I watched tons of videos on YouTube since 2020 and if you are wondering if there are any useful channels that you can subscribe to for learning market trends, TA, FA, check out this compilation here:
My Secret Weapons For Options Trading: I Watch These YouTube Financial Channels Every Day
I concluded my first year of options trading with more than USD160k of gain, see how I do it and the capital I use for every month to give you a sensing of the percentage yield I get out of my gains:
1st Year Options Trading Recap: The Journey Towards SGD$217,509 Profits In 2021
This blog is as authentic and as transparent as I can share, I do not just show the wins and hide the loss. I have made some very bad decisions in the first 8 years of investing and paid a huge price for them. Here is the loss I have accumulated during these years. I hope you learn some lessons from my mistakes.
I Cut $135,715 Worth Of Losses In The Last 1.5 Months
Want to learn more about Technical Analysis (TA) but find it difficult to grasp the concepts? This article brings you TA at a glance, and helps you understand key terminologies, indicators, and techniques used in TA to equip you with the knowledge that can empower you in your investing/ trading journey.
The Newbie Guide To Technical Analysis (TA)
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