Cabot Options Institute Fundamentals – Dogs of the Dow Alert (JPM, AMGN, WBA)
Our WBA calls are due to expire today, so I want to buy them back for a few pennies and immediately sell more premium. JPM and AMGN are due to expire next week, but most, if not all of the premium has left the respective calls. Therefore, I want to buy back our short calls and like WBA, immediately sell more calls.
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.
JPM is currently trading for 139.87.
Here is the trade:
Buy to close the JPM February 17, 2023, 145 call for roughly $0.35 (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 JPM March 17, 2023, 145 call for roughly $1.95 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.2%
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.
Amgen (AMGN)
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, 185 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 240.68.
Here is the trade:
Buy to close the AMGN February 17, 2023, 280 call for roughly $0.05 (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 March 17, 2023, 250 call for roughly $2.15 (adjust accordingly, prices may vary from time of alert)
Premium received: 2.6%
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 $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.
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.
Walgreens Boots Alliance (WBA)
We currently own the WBA January 17, 2025, 25 call LEAPS contract at $11.10. 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, 27.5 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
WBA is currently trading for 36.21.
Here is the trade:
Buy to close the WBA February 10, 2023, 37 call for roughly $0.02 (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 WBA March 17, 2023, 37.5 call for roughly $0.47 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.2%
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 $11.10 (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 WBA.
And, as always, if you have any questions, please feel free to email me at andy@cabotwealth.com.