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Fundamentals
Realistic Strategies, Realistic Returns

December 1, 2023

In the Buffett’s Patient Investor portfolio, we currently own the TXN January 17, 2025, 135 call LEAPS contract at $53.05. You must own LEAPS in order to use this strategy.

Cabot Options Institute Fundamentals - Alert (TXN)

Buffett’s Patient Investor Portfolio Alert (TXN)

Texas Instruments (TXN)

TXN is currently trading for 155.

In the Buffett’s Patient Investor portfolio, we currently own the TXN January 17, 2025, 135 call LEAPS contract at $53.05. 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 16, 2026, 115 calls.

COI_F_120123_TXN_close.png

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 (you must own LEAPS in TXN before placing the trade, otherwise you will be naked short calls):

Here is the trade:

Buy to close TXN December 1, 2023, 160 call for roughly $0.02. (Adjust accordingly, prices may vary from time of alert.)

COI_F_120123_TXN_close.png

Once that occurs:

Sell to open TXN January 19, 2023, 165 call for roughly $1.34. (Adjust accordingly, prices may vary from time of alert.)

COI_F_120123_TXN_open.png

Premium received: 2.5%

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 $53.05 (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 TXN. That being said, since TXN resides in one of our active portfolios, there is the potential we take the trade off during our periodic monthly rebalancing which falls around each options expiration cycle.

An alternative way to approach a poor man’s covered call, if you are a bit more bullish on the stock, is to buy two LEAPS for every call sold. This way you can benefit from the additional upside past your chosen short strike, yet still participate in the benefits of selling premium.

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.