Dogs of the Dow Portfolio Alert (IBM, AMGN)
International Business Machines (IBM)
IBM continues to rally, and the underlying price has now pushed past our short call strike. As a result, the delta of our short call is now at parity with our LEAPS contract, so we need to buy back our short calls and immediately sell more calls at a higher strike price that are further out in duration.
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 roughly 0.80: the January 17, 2025, 115 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
IBM is currently trading for 145.78.
Here is the trade:
Buy to close IBM August 25, 2023, 142 call for roughly $3.80. (Adjust accordingly, prices may vary from time of alert.)
Once that occurs (and you have LEAPS in your possession):
Sell to open IBM September 22, 2023, 149 call for roughly $1.44. (Adjust accordingly, prices may vary from time of alert.)
Premium received: 3.3%
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 $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.
Amgen (AMGN)
AMGN is up over 6% today so we need to make a few adjustments to give our position more room to run.
We currently own the AMGN January 17, 2025, 200 call LEAPS contract at $81.35. 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, 195 calls.
We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
AMGN is currently trading for 245.41.
Here is the trade:
Buy to close the AMGN August 25, 2023, 245 call for roughly $4.30. (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 AMGN September 22, 2023, 255 call for roughly $2.67. (Adjust accordingly, prices may vary from time of alert.)
Premium received: 3.3%
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 $81.35 (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 AMGN.