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Fundamentals
Realistic Strategies, Realistic Returns

October 12, 2022

The October expiration cycle comes to an end next week so it’s time to roll a few of our call positions that have little to no time premium left. I’ll be rolling several more positions over the next few days.

Cabot Options Institute Fundamentals – Alert (IEF, TLT, VTI)

The October expiration cycle comes to an end next week so it’s time to roll a few of our call positions that have little to no time premium left. I’ll be rolling several more positions over the next few days.

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 of an already established position. Based on our approach, the LEAPS contracts with a delta of 0.80 are currently the January 19, 2024, 80 calls. 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 IEF October 21, 2022, 98.5 call for roughly $0.05 (adjust accordingly, prices may vary from time of alert)

COI_F_101222_IEF_close

Once that occurs (or if you are new to the position and already own LEAPS):

Sell to open IEF November 25, 2022, 97.5 call for roughly $0.92 (adjust accordingly, prices may vary from time of alert)

COI_F_101222_IEF_open

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 $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.

iShares 20 Year Bond ETF (TLT)

We currently own the TLT January 19, 2024, 85 call LEAPS contract at $29.10. You must own LEAPS in order to use this strategy.

Based on our approach, the LEAPS contract that works best is the one with a current delta of 0.80: the January 19, 2024, 75 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.

Here is the trade:

Buy to close TLT October 21, 2022, 110.5 call for roughly $0.03 (adjust accordingly, prices may vary from time of alert)

COI_F_101222_TLT_close

Once that occurs (or if you are new to the position and already own LEAPS):

Sell to open TLT November 25, 2022, 104.5 call for roughly $1.66 (adjust accordingly, prices may vary from time of alert)

COI_F_101222_TLT_open

Premium received: 5.7%

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 $29.10 (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 TLT.

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.

Based on our approach, the LEAPS contract that works best is the one with a current delta of 0.80: the January 19, 2024, 150 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.

Here is the trade:

Buy to close VTI October 21, 2022, 197 call for roughly $0.15 (adjust accordingly, prices may vary from time of alert)

COI_F_101222_VTI_close

Once that occurs (or if you are new to the position and already own LEAPS):

Sell to open VTI November 18, 2022, 190 call for roughly $3.10 (adjust accordingly, prices may vary from time of alert)

COI_F_101222_VTI_open

Premium received: 5.7%

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.

Andy Crowder is a professional options trader, researcher and Chief Analyst of Cabot Options Institute. Formerly with Oppenheimer & Co. in New York, Andy has leveraged his investment experience to develop his statistically based options trading strategy which applies probability theory to option valuations in order to execute risk-controlled trades. This proprietary strategy has been refined through two decades of research and real-world experience and has been featured in the Wall Street Journal, Seeking Alpha, and numerous other financial publications. Andy has helped thousands of option traders learn and implement his meticulous rules-driven options trading strategies through highly attended conferences, one-on-one coaching, webinars, and his work as a financial columnist. He currently resides in Bolton Valley, Vermont and when he’s not trading, teaching and writing about options, he enjoys spending time with his wife and two daughters, backcountry skiing, biking, running and enjoying all things outdoors.