Cabot Options Institute Fundamentals – Dogs of the Dow Alert (JPM, IBM)
JPMorgan (JPM)
We currently own the JPM January 17, 2025, 100 call LEAPS contract at $46.20. 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 0.80: the January 17, 2025, 105 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
We allowed our April 21, 2023, 145 calls to expire worthless at expiration. As a result, I want to sell more premium today in JPM.
JPM is currently trading for 140.61.
Here is the trade:
Sell to open JPM June 16, 2023, 145 call for roughly $2.53 (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 $46.20 (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 JPM.
International Business Machines (IBM)
We currently own the IBM January 17, 2025, 105 call LEAPS contract at $43.15. 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, 100 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
We allowed our April 21, 2023, 135 calls to expire worthless at expiration. As a result, I want to sell more premium today in IBM.
IBM is currently trading for 124.67.
Here is the trade:
Sell to open IBM June 2, 2023, 127 call for roughly $1.16 (adjust accordingly, prices may vary from time of alert)
Premium received: 2.7%
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 $43.15 (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 IBM.