Cabot Options Institute Fundamentals – Alert (DBC, GLD, IEF)
I’m rolling my December positions into January. We still have to roll our December SPY calls, but I’m going to hold them for a few more days to allow time decay to work its magic.
All-Weather Portfolio
Invesco DB Commodity Index ETF (DBC)
We currently own the DBC January 19, 2024, 22 call LEAPS contract at $10.50. 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 contract that works best is the one with a current delta of 0.80: the January 17, 2025, 19 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 DBC December 16, 2022, 27 call for roughly $0.05 or more (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 DBC January 20, 2023, 25 call for roughly $0.45 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 4.3%
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 $10.50 (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 DBC.
SPDR Gold Trust ETF (GLD)
We currently own the GLD January 19, 2024, 145 call LEAPS contract at $37.00. 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 17, 2025, 150 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 GLD December 16, 2022, 169 call for roughly $1.02 or less (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 GLD January 20, 2023, 172 call for roughly $1.96 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 5.3%
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 $37.00 (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 GLD.
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.
Based on our approach, the LEAPS contracts with a delta of 0.80 are currently the January 17, 2025, 85 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 December 16, 2022, 98 call for roughly $0.86 (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 IEF January 20, 2023, 100 call for roughly $0.88 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.6%
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.