Cabot Options Institute Fundamentals – Alert (IBM, MMM, JPM)
On Tuesday I sent out our first Dogs of the Dow trade with some insight regarding the investment strategy, our approach to poor man’s covered call,s and a detailed discussion on the trade mechanics.
If you didn’t get a chance to browse the alert with the accompanying strategy discussion, click here. So again, if you want a deeper dive into the strategy, read the last alert or, better yet, go to your subscriber page and check out the various reports on our approach to the Dogs of the Dow and poor man’s covered calls.
Here are today’s Dogs of the Dow trades. I will send out the remaining trades in CVX and AMGN during Monday’s trading session.
International Business Machines (IBM)
IBM is currently trading for 143.71.
Here is the trade:
Buy to open the IBM January 17, 2025, 105 call for roughly $43.15 (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 IBM February 17, 2023, 150 call for roughly $2.45 (adjust accordingly, prices may vary from time of alert)
Premium received: 5.7%
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 $43.15 (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 IBM.
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.
3M (MMM)
MMM is currently trading for 125.91.
Here is the trade:
Buy to open the MMM January 17, 2025, 90 call for roughly $41.40 (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 MMM February 17, 2023, 135 call for roughly $1.70 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.1%
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 $41.40 (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 MMM.
JP Morgan (JPM)
JPM is currently trading for 137.40.
Here is the trade:
Buy to open the JPM January 17, 2025, 100 call for roughly $46.20 (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 JPM February 17, 2023, 145 call for roughly $2.26 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.8%
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 $46.20 (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 JPM.
And, as always, if you have any questions, please feel free to email me at andy@cabotwealth.com.