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Realistic Strategies, Realistic Returns

January 26, 2023

Cabot Options Institute Fundamentals: Dogs of the Dow Portfolio – Alert (CVX)

Chevron continues to push higher since we added the position back on January 9. The ongoing advance has pushed our deltas to an almost neutral state. As a result, I want to buy back our calls and immediately sell more premium.

Chevron (CVX)

To eliminate any confusion, this CVX trade is for the Dogs of the Dow portfolio, NOT the Growth/Value Portfolio. We opened up a position in CVX months ago and continue to hold that position within that portfolio. As a reminder, each portfolio is run as its own entity.

We currently own the CVX January 17, 2025, 125 call LEAPS contract at $59.80. The 125 LEAPS are now trading for roughly $67.80. You must own LEAPS in order to use this strategy.

If you wish to enter the position and are uncertain about which LEAPS to purchase, please refer to the reports section of your subscriber page or our latest subscriber-exclusive webinar in which I go through the process, step by step, of entering a new position of an already established position.

That being said, based on our approach, the LEAPS contract that works best is the one with a current delta of 0.79: the January 17, 2025, 140 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has roughly 18 to 24 months left until expiration.

CVX is currently trading for 187.32.

Here is the trade:

Buy to close CVX February 17, 2023, 180 call for roughly $9.50 (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 CVX March 17, 2023, 195 call for roughly $3.30 (adjust accordingly, prices may vary from time of alert)

Premium received: 5.5%

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 $59.80 (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 CVX.

Andy Crowder is a professional options trader, researcher and Senior Analyst at Cabot. 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.