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Fundamentals
Realistic Strategies, Realistic Returns

February 9, 2024

As I stated yesterday, I’ll be rolling our February expiration short call positions into March expiration over the next few days. Moreover, per usual this time of year, I’ll be selling our LEAPS in the passive portfolios (All-Weather and Yale Endowment) at March expiration and buying new LEAPS going out to the January 2026 expiration.

All-Weather Portfolio Portfolio Alert (TLT, IEF)

As I stated yesterday, I’ll be rolling our February expiration short call positions into March expiration over the next few days. Moreover, per usual this time of year, I’ll be selling our LEAPS in the passive portfolios (All-Weather and Yale Endowment) at March expiration and buying new LEAPS going out to the January 2026 expiration.

However, for those who are new and wish to enter a trade, all of the details are listed in the alerts for those wanting to initiate a position. As always, if you have any questions, please do not hesitate to email me at andy@cabotwealth.com.

iShares 20+ Year Treasury Bond ETF (TLT)

TLT is currently trading for 93.92.

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, 77 calls.

COI_F_020924_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 February 16, 2024, 96 call for roughly $0.16. (Adjust accordingly, prices may vary from time of alert.)

COI_F_020924_TLT_close.png

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

Sell to open TLT March 15, 2024, 96 call for roughly $0.91. (Adjust accordingly, prices may vary from time of alert.)

COI_F_020924_TLT_open.png

Premium received: 3.8%

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 and thin. The goal is obviously to make a nice return but with a smooth equity curve.

iShares Trust 7-10 Year Treasury Bond ETF (IEF)

IEF is currently trading for 94.53.

In the All-Weather portfolio, we currently own the IEF January 17, 2025, 85 call LEAPS contract at $16.35. 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 16, 2026, 85 calls.

COI_F_020924_IEF_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 IEF before placing the trade, otherwise you will be naked short calls):

Once you have LEAPS in your possession:

Buy to close IEF February 16, 2024, 96 call for roughly $0.07. (Adjust accordingly, prices may vary from time of alert.)

COI_F_020924_IEF_close.png

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

Sell to open IEF March 15, 2024, 96 call for roughly $0.42. (Adjust accordingly, prices may vary from time of alert.)

COI_F_020924_IEF_open.png

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 $16.35 (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 IEF.

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