Apple Investors Eye Covered Call Strategy Ahead of Earnings

Apple's stock has reached new heights, making investors wonder how much upside is left and whether earnings will knock it off its record closes. The company has notched three straight record closes this year, topping the 'Magnificent Seven' leaderboard.

To cushion gains ahead of Apple's upcoming earnings report, shareholders can consider a covered call strategy. This involves selling one call option for every 100 shares owned, generating income upfront in exchange for giving up some potential gains if the stock continues to rise.

For example, an investor who owns 100 Apple shares near $340 and sells one August 21 call with a $355 strike price can collect about $4.35 per share, or $435 total. However, if Apple keeps climbing above $355, losses on the short call begin to grow.

The combined-position chart shows that the covered call strategy has a breakeven price of $335.65, compared to $340 for the shares alone. Between $335.65 and $355, the trade is profitable and continues rising with Apple. However, if the stock finishes above $355, the investor may have to sell their shares at the strike price.