I’ve decided to go ahead and buy back our short calls in GLD, DBC, VNQ and VTI for the opportunity to sell more premium in September. I will be sending the trades in two separate alerts to make it a little more manageable. I’ll start with GLD and VTI in this alert…
Both GLD and DBC have little to no premium, so I want to buy back our short calls for the opportunity to sell more premium.
VNQ and VTI have pushed well past their short calls and are reaching ever closer to parity with their LEAPS, so I want to buy back our calls and bring our deltas back to normal levels. Yes, we will take a loss on our short calls in VNQ and VTI by buying them back, but we have more than made up for it in the increase in our LEAPS contracts for both underlying ETFs.
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.
ALL-WEATHER PORTFOLIO
SPDR Gold Trust ETF (GLD)
We currently own the GLD January 19, 2024, 145 call LEAPS contract at $37.00. 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 watch 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 GLD August 19, 2022, 175 call for roughly $0.21 or less (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 GLD September 16, 2022, 169 call for roughly $1.90 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 5.1%
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 $37.00 (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 GLD.
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.
As with GLD, 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 August 19, 2022, 193 call for roughly $11.00 (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 September 16, 2022, 210 call for roughly $2.95 (adjust accordingly, prices may vary from time of alert)
Premium received: 5.4%
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.