I’ve decided to go ahead and buy back our short calls in IEF and VTI for the opportunity to sell more premium in August. Both short calls in IEF and VTI have little to no premium left, so now is as good a time as ever to sell more premium in both underlying ETFs.
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.
All-Weather Portfolio
ALL-WEATHER PORTFOLIO
iShares 7-10 Year Treasury Bond ETF (IEF)
We currently own the IEF January 19, 2024, 85 call LEAPS contract at $19.00. You must own LEAPS in order to use this strategy. If you wish to enter the position and are uncertain about which LEAPS to purchase, please refer to the reports section of your subscriber page, or our latest subscriber-exclusive webinar in which I go through the process, step by step, of entering a new position on an already established position.
As stated above, we typically initiate a LEAPS position, with a delta of roughly 0.80, that has roughly 18 to 24 months left until expiration. By going out this far we eliminate theta decay. We roll the LEAPS contract further out in time once there is roughly one year left until expiration to avoid any theta decay.
Here is the trade:
Buy to close IEF July 15, 2022, 103 call for roughly $0.19 or less (adjust accordingly, prices may
Once that occurs (or if you are new to the position and already own LEAPS):
Once that occurs (or if you are new to the position and already own LEAPS):
Sell to open IEF August 19, 2022, 105 call for roughly $0.58 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 3.1%
Once the initial LEAPS purchase occurs, we maintain the position and focus on selling near-term call premium against our LEAPS, lowering the original cost basis of $19.00 (or the price at which you purchased your LEAPS) with each and every transaction.
We can continue to sell calls against our LEAPS contract every month or so to lower the total capital outlay. But remember, options have a limited life, so when we get closer to the LEAPS contract’s expiration, we will simply sell the contract and use the proceeds to continue our poor man’s covered call strategy in IEF.
Vanguard Total Stock Market (VTI)
We currently own the VTI January 19, 2024, 145 call LEAPS contract at $54.50. You must own LEAPS in order to use this strategy. If you wish to enter the position and are uncertain about which LEAPS to purchase, please refer to the reports section of your subscriber page or our latest subscriber-exclusive webinar in which I go through the process, step by step, of entering a new position of an already established position.
As with IEF, we typically initiate a LEAPS position, with a delta of roughly 0.80, that has roughly 18 to 24 months left until expiration.
Here is the trade:
Buy to close VTI July 15, 2022, 198 call for roughly $0.03 (adjust accordingly, prices may vary from time of alert)
Once that occurs (or if you are new to the position and already own LEAPS):
Sell to open VTI August 19, 2022, 193 call for roughly $3.20 (adjust accordingly, prices may vary from time of alert)
Premium received: 5.9%
Once the initial LEAPS purchase occurs, we maintain the position and focus on selling near-term call premium against our LEAPS, lowering the original cost basis of $54.50 (or the price at which you purchased your LEAPS) with each and every transaction.
We can continue to sell calls against our LEAPS contract every month or so to lower the total capital outlay. But remember, options have a limited life, so when we get closer to the LEAPS contract’s expiration, we will simply sell the contract and use the proceeds to continue our poor man’s covered call strategy in VTI.