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Fundamentals
Realistic Strategies, Realistic Returns

April 11, 2023

Cabot Options Institute Fundamentals – Dogs of the Dow – Alert (WBA, MMM)

Walgreens Boots Alliance (WBA)

Our April 14, 2023 36 calls are due to expire this week. As a result, I want to buy back our April calls and immediately sell more calls going out further in duration. This will increase our deltas and allow us to benefit from continued upside in the underlying stock.

We currently own the WBA January 17, 2025, 25 call LEAPS contract at $11.10. You must own LEAPS in order to use this strategy.

If you are new to the position, based on our approach, the LEAPS contract that works best is the one with a current delta of 0.78: the January 17, 2025, 27.5 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.

WBA is currently trading for 36.27.

Here is the trade:

Buy to close the WBA April 14, 2023, 36 call for roughly $0.51 (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 WBA May 19, 2023, 37.5 call for roughly $0.61 (adjust accordingly, prices may vary from time of alert)

Premium received: 5.5%

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 $11.10 (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 WBA.

3M (MMM)

Our April 14, 2023 112 calls are due to expire this week. As a result, I want to buy back our April calls and immediately sell more calls going out further in duration. This will increase our deltas and allow us to benefit from continued upside in the underlying stock.

We currently own the MMM January 17, 2025, 90 call LEAPS contract at $41.40. You must own LEAPS in order to use this strategy.

If you are new to the position, based on our approach, the LEAPS contract that works best is the one with a current delta of 0.81: the January 17, 2025, 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.

MMM is currently trading for 104.20.

Here is the trade:

Buy to close the MMM April 14, 2023, 112 call for roughly $0.02 (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 MMM May 19, 2023, 110 call for roughly $1.70 (adjust accordingly, prices may vary from time of alert)

Premium received: 4.1%

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 $41.40 (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 MMM.

And, as always, if you have any questions, please feel free to email me at andy@cabotwealth.com.

Cabot Options Institute Fundamentals – Yale Endowment Portfolio Alert (SPY)

SPDR S&P 500 ETF (SPY)

We currently own the SPY January 19, 2024, 290 call LEAPS contract at $117. You must own LEAPS in order to use this strategy.

There are 283 days left until our SPY LEAPS are due to expire. Per our guidelines we roll out our LEAPS further in duration once there are 10-12 months left in our LEAPS contract.

As a result, I want to sell to close our SPY January 19, 2024, 290 call LEAPS contract and immediately buy to open a January 2025 LEAPS contract with 647 days left until expiration.

Here is the trade:

Sell to close SPY January 19, 2024, 290 call for roughly $130.86 (adjust accordingly, prices may vary from the time of alert)

Once that occurs:

Buy to open SPY January 17, 2025, 345 call for roughly $98.00 or more (adjust accordingly, prices may vary from time of alert)

COI_F_041123_SPY.png

And once you have LEAPS in your possession:

Buy to close SPY April 21, 2023, 410 call for roughly $5.00 or more (adjust accordingly, prices may vary from time of alert)

Once that occurs:

Sell to open SPY May 19, 2023, 420 call for roughly $5.13 or more (adjust accordingly, prices may vary from time of alert)

COI_F_041123_SPY_shortcalls.png

Premium received: 5.2%

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 $98.00 (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 SPY.

As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.


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.