So far, so good. As of Friday, all three of our open positions are in the green, even though the overall market has pulled back rather significantly.

We still have a lot of trades to place as we begin to build out each one of the portfolios. So, that being said, I’m going to keep it rather short today as we are just in the early ramp-up phase of the five portfolios that reside in the Fundamentals service. This will no doubt be the shortest issue you will ever receive. Enjoy!

Cabot Options Institute – Fundamentals Issue: June 13, 2022

So far, so good. As of Friday, all three of our open positions are in the green, even though the overall market has pulled back rather significantly.

As I stated in my last update, I decided to wait until Monday to send out a trade alert for trades in the Vanguard Total Stock Market ETF (VTI) and iShares 20+ Year Treasury Bond ETF (TLT), which in hindsight looks like a good decision.

I’ll also be adding most, if not all, of the positions for the Yale Endowment Portfolio this week. The positions include:

SPDR S&P 500 ETF (SPY)
iShares MSCI Emerging Market ETF (EEM)
Vanguard Real Estate (VNQ)
iShares Trust TIPS ETF (TIP)
iShares Trust MSCI EAFE ETF (EFA)

Additionally, as I said in my last alert, once we have our two passive ETF portfolios built out (All-Weather, Yale Endowment), we will be focusing on the three additional stock-based portfolios (Dogs of the Dow, Buffett’s Patient Investor, O’Shaughnessy’s Growth/Value).

All of this being said, and given the current market performance, I plan on taking a measured approach to sending out alerts, so things could change quickly. But, as always, I will keep all of you aware of my plans going forward.

Also, don’t forget we have our first subscribers-only webinar tomorrow, Tuesday, June 14 at 1:00 ET (you can register here) where we will be covering the strategy, portfolios and all things options. I hope all of you can make it and please come with lots of questions.

Current Positions

Click here to access the “Portfolios” section to access each portfolio’s respective positions.

Options Education

Today, I want to go over a question that is asked quite often: “What do we do when the stock pushes above our short call strike?” I hope the following helps to clear up a few of these questions. I also plan on going over this in greater detail in the upcoming webinar.

Question: What happens if the price of the underlying stock or ETF goes above our short call strike price?

Answer: The benefit of a poor man’s covered call over a traditional covered call is that we are not limited to the short call capping our upside gains. The overall position, when initiated, of a poor man’s covered call is delta positive. So, even with the underlying stock or ETF hitting the short call strike (and pushing above it), the delta of the position will still participate in upside gains … that is until the delta of the LEAPS contract is at parity with the short call.

Remember, the LEAPS contract has a delta much higher than that of the short call so even if the underlying stock or ETF’s price pushes past the short call strike we are still making money on the trade.

Once the our short call and LEAPS position have roughly the same delta we will begin the process of buying back our short call and rolling it out further and back to a delta of roughly 0.20 to 0.40.

Question: What happens when a stock turns bullish and keeps going up and up until your short call and option expiry date? Your short-dated short call would go up in value as will your long-dated deep ITM (in-the-money) long call.

Answer: We simply buy back our short call prior to expiration if our short call is deep in-the-money or the delta of our short call has moved in parity with our LEAPS contract.

The stock moving higher is the best-case scenario for a poor man’s covered call position, as it is a delta-positive position at the onset of the trade and continues to be until the delta of the short call equals that of the LEAPS position.

At that point, most of the time prior, we simply buy back our short call and sell more premium or simply take the entire position off for a nice profit. Also, remember the cost of using a poor man’s covered call is significantly less than that of a covered call. This enables you to diversify amongst a basket of stocks and create significantly more premium. I hope this helps.

Portfolio Discussion

All-Weather Portfolio
As I stated in the intro, at the time of this writing all three open positions are in the green, which is saying something in this market.

I will be adding Vanguard Total Stock Market ETF (VTI) and iShares 20+ Year Treasury Bond ETF (TLT) Monday and then we can focus on simply selling call premium in all five positions going forward.

Yale Endowment Portfolio
No positions at the moment. Will be adding positions this week.

Dogs (and Small Dogs) of the Dow
No positions at the moment. Will be adding positions shortly.

Warren Buffett’s Patient Investor Portfolio
No positions at the moment. Will be adding positions shortly.

James O’Shaughnessy’s Growth/Value Portfolio
No positions at the moment. Will be adding positions shortly.

Next Live Analyst Briefing with Q&A

Our first Live Analyst Briefing with Q&A is scheduled for June 14, 2022 at 1 p.m. ET, where we will be discussing the options market, giving a detailed look at open positions, strategies used, and doing a follow-up with live questions and answers. But I also want to take some time to go through the ins and outs of the service and what to expect going forward, so I’ll probably go a little longer than usual, possibly upwards of 45 minutes to an hour, potentially longer if we have lots of questions…and I hope we do. Register here.

The next Cabot Options Institute – Fundamentals issue will be published on July 11, 2022.

About the Analyst

Andy Crowder

Andy Crowder is a professional options trader, researcher and Chief Analyst of Crowder Options. 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.