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Fundamentals
Realistic Strategies, Realistic Returns

December 20, 2023

We have several positions that need to be rolled to higher strikes. The deltas of our LEAPS contract and short calls are at parity, so I want to buy back my short calls and sell more further out in duration and at a higher strike price.

Cabot Options Institute Fundamentals - Alert (VTI, TLT)

We have several positions that need to be rolled to higher strikes. The deltas of our LEAPS contract and short calls are at parity, so I want to buy back my short calls and sell more further out in duration and at a higher strike price.

The ongoing rally has created some nice gains for our positions, but now we need to extend our deltas once again so we can continue to take advantage of any further upside.

For those who are new to the service. I will be adding 10 brand-new positions in the Dogs of the Dow at the onset of 2024. I will also be rolling my current LEAPS in the other passive portfolios (All-Weather, Yale Endowment) closer to the January 19 expiration cycle, if not sooner. This should give everyone an opportunity to get into new positions and start fresh. As a reminder, I typically buy LEAPS two years out in time, with the intent of selling them when they have 10-12 months left. Once sold, I immediately buy more LEAPS going out two years in time… and repeat this process as long as I am willing to hold the position.

However, as always, if you wish to open a new position now, all of the pertinent information can be found below.

All-Weather Portfolio (VTI)

Vanguard Total Stock Market ETF (VTI)

Our position is currently up 38.8%, while the underlying ETF is up only 25.1%.

VTI is currently trading for 238.48.

In the All-Weather portfolio, we currently own the VTI January 17, 2025, 165 call LEAPS contract at $55.05. 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, 205 calls.

COI_F_122023_VTI_LEAPS.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 VTI before placing the trade, otherwise you will be naked short calls):

Once you have LEAPS in your possession:

Buy to close VTI January 19, 2024, 230 call for roughly $9.20. (Adjust accordingly, prices may vary from time of alert.)

COI_F_122023_VTI_close.png

Once that occurs:

Sell to open VTI January 19, 2024, 240 call for roughly $2.20. (Adjust accordingly, prices may vary from time of alert.)

COI_F_122023_VTI_open.png

Premium received: 4.0%

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 $55.05 (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 VTI.

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.

iShares 20+ Year Treasury Bond ETF (TLT)

We allowed our calls to expire worthless last week, thereby reaping the entire call premium. As a result, it’s time to start selling more call premium.

TLT is currently trading for 98.88.

In the All-Weather portfolio, we currently own the TLT January 17, 2025, 85 call LEAPS contract at $24.05. 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, 79 calls.

COI_F_122023_TLT_LEAPS.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 TLT before placing the trade, otherwise you will be naked short calls):

Once you have LEAPS in your possession:

Buy to close TLT January 19, 2024, 98 call for roughly $2.49. (Adjust accordingly, prices may vary from time of alert.)

COI_F_122023_TLT_close.png

Once that occurs (or if you are new to the position):

Sell to open TLT January 19, 2024, 101 call for roughly $1.07. (Adjust accordingly, prices may vary from time of alert.)

COI_F_122023_TLT_open.png

Premium received: 4.4%

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 $24.05 (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 TLT.

The All-Weather Portfolio continues to shine in all market environments. The strategy might not offer historic upside, but it also doesn’t expose investors to huge downside risk. It’s simply a consistent performer through thick or thin. The goal is obviously to make a nice return but with a smooth equity curve.

As always, if you have questions, please do not hesitate 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.