Cabot Options Institute Fundamentals – Alert (DOW)
We still have a few February positions in our Dogs of the Dow portfolio that need rolling. I’m starting with DOW today and will roll the rest of our February positions into March over the next two days.
Dow Inc. (DOW)
DOW is currently trading at 60.24.
Our position is up close to 30% since initiating it during the first week of 2023.
Here is the trade:
Buy to close the DOW February 17, 2023, 60 call for roughly $0.95 (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 DOW March 17, 2023, 62.5 call for roughly $0.70 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.1%
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 $16.85 (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 DOW.
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.