I’ve decided to go ahead and buy back our short calls in DBC and GLD for the opportunity to sell more premium in August. Both short calls in DBC and GLD 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
Invesco DB Commodity Index Tracking ETF (DBC)
We currently own the DBC January 19, 2024 22 call LEAPS contract at $10.50. 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.
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 DBC July 15, 2022 32 call for roughly $0.05 or less (adjust accordingly)
Once that occurs (or if you are new to the position and already own LEAPS):
Sell to open DBC August 19, 2022 29 call for roughly $0.50 or more (adjust accordingly)
Premium received: 4.8%
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 $10.50 (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 DBC.
SPDR Gold Trust ETF (GLD)
We currently own the GLD January 19, 2024 145 call LEAPS contract at $35.95. 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.
As with DBC, 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 GLD July 15, 2022 181 call for roughly $0.12
Once that occurs (or if you are new to the position and already own LEAPS):
Sell to open GLD August 19, 2022 175 call for roughly $1.91
Premium received: 5.3%
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 $35.95 (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.