Cabot Options Institute Fundamentals – Alert (AMGN, CVX)
Last 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 calls, 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. This will mark the last of our initial opening trades for the Dogs of the Dow portfolio.
Amgen (AMGN)
AMGN is currently trading for 269.00.
Here is the trade:
Buy to open the AMGN January 17, 2025, 200 call for roughly $81.35 (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 AMGN February 17, 2023, 280 call for roughly $3.85 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.7%
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 $81.35 (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 AMGN.
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.
Chevron (CVX)
CVX is currently trading for 174.89.
Here is the trade:
Buy to open the CVX January 17, 2025, 125 call for roughly $59.80 (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 February 17, 2023, 180 call for roughly $4.50 (adjust accordingly, prices may vary from time of alert)
Premium received: 7.5%
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.