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Realistic Strategies, Realistic Returns

January 13, 2023

Cabot Options Institute Fundamentals – Alert (GLD)

All-Weather Portfolio

SPDR Gold Trust ETF (GLD)

I’ve decided to hold on to my current LEAPS position, the January 19, 2024, 145 calls. Theta, or time decay, is still incredibly low so I’m going to hold on for another expiration cycle and reevaluate.

The recent rally in GLD has pushed the delta of our short calls to parity with our LEAPS. As a result, I’m going to buy back our January 20, 2023 172 calls and immediately sell premium in the February expiration cycle, looking for strike prices with deltas ranging from 0.20 to 0.40.

Again, we currently own the GLD January 19, 2024, 145 call LEAPS contract at $37.00. You must own LEAPS in order to use this strategy.

Based on our approach, the LEAPS contract that works best is the one with a current delta of 0.80: the January 17, 2025, 150 calls. 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:

Buy to close GLD January 20, 2023, 172 call for roughly $6.60 or less (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 GLD February 17, 2023, 184 call for roughly $1.50 or more (adjust accordingly, prices may vary from time of alert)

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 $37.00 (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 GLD.

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.