Buffett’s Patient Investor Portfolio Alert (GOOGL)
Google (GOOGL) continues to rally higher and has now pushed past its short call strike. As a result, the stock is up 26.3% since we introduced GOOGL. By comparison, our poor man’s covered call position in GOOGL is up over 85%.
With earnings coming next week I want to buy back our February 16, 2024, 150 calls and immediately sell more calls. By doing so, we are able to increase the delta of our position to take advantage of any additional upside in the stock.
As always, if you have any questions, please do not hesitate to email me at andy@cabotwealth.com.
Alphabet (GOOGL)
GOOGL is currently trading for 152.28.
In the Buffett’s Patient Investor portfolio, we currently own the GOOGL January 17, 2025, 100 call LEAPS contract at $34.45. 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 roughly 0.80: the January 16, 2026, 130 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 (you must own LEAPS in GOOGL before placing the trade, otherwise you will be naked short calls):
Buy to close GOOGL February 16, 2024, 150 call for roughly $6.45. (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 GOOGL March 15, 2024, 165 call for roughly $1.94. (Adjust accordingly, prices may vary from time of alert.)
Premium received: 5.6%
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 $34.45 (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 GOOGL.
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.