Cabot Options Institute Fundamentals – All-Weather Portfolio Alert (GLD, IEF, TLT)
With the July 21, 2023, expiration cycle coming to a close in nine days, it’s time to start buying back our short calls and selling more premium going out 30 to 60 days. I’ll be sending out numerous trade alerts for the various portfolios over the next few days, including the potential for a few more new trades in our active portfolios.
All of our portfolios continue to benefit from the ongoing bullish trend this year. Remember, inherently our positions are skewed to the upside (long delta), so bullish moves are always a welcome sight.
Also, a reminder, I will be holding my next subscriber-only webinar next week, Tuesday, June 18 at 12 p.m. ET. Click here to join. No worries, if you can’t make it, we always archive our webinars on your subscriber page so you can access them at your leisure.
SPDR Gold Shares ETF (GLD)
GLD is currently trading for 181.64.
In the All-Weather portfolio, we currently own the GLD January 17, 2025, 171 call LEAPS contract at $32.00. 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 0.80: the January 17, 2025, 167 calls. We typically initiate a LEAPS position, with a delta of roughly 0.84, that has roughly 18 to 24 months left until expiration.
Here is the trade (you must own LEAPS in GLD before placing the trade, otherwise you will be naked short calls):
Once you have LEAPS in your possession:
Buy to close GLD July 21, 2023, 186 call for roughly $0.25 or more (adjust accordingly, prices may vary from time of alert)
Once that occurs:
Sell to open GLD August 18, 2023, 187 call for roughly $1.18 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 3.9%
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 $32.00 (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.
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.
iShares Trust 7-10 Year Treasury Bond ETF (IEF)
IEF is currently trading for 96.25.
In the All-Weather portfolio, we currently own the IEF January 17, 2025, 85 call LEAPS contract at $16.35. 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 0.80: the January 17, 2025, 87 calls. We typically initiate a LEAPS position, with a delta of roughly 0.79, that has roughly 18 to 24 months left until expiration.
Here is the trade (you must own LEAPS in IEF before placing the trade, otherwise you will be naked short calls):
Once you have LEAPS in your possession:
Buy to close IEF July 21, 2023, 98 call for roughly $0.07 (adjust accordingly, prices may vary from time of alert)
Once that occurs:
Sell to open IEF August 18, 2023, 98 call for roughly $0.52 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 3.2%
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 $16.35 (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 IEF.
iShares 20+ Year Treasury Bond ETF (TLT)
TLT is currently trading for 100.90.
In the All-Weather portfolio, we currently own the TLT January 17, 2025, 85 call LEAPS contract at $24.05. 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 0.80: the January 17, 2025, 80 calls. We typically initiate a LEAPS position, with a delta of roughly 0.79, that has roughly 18 to 24 months left until expiration.
Here is the trade (you must own LEAPS in TLT before placing the trade, otherwise you will be naked short calls):
Once you have LEAPS in your possession:
Buy to close TLT July 21, 2023, 104 call for roughly $0.11 (adjust accordingly, prices may vary from time of alert)
Once that occurs:
Sell to open TLT August 18, 2023, 104 call for roughly $0.79 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 3.3%
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 $24.05 (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 TLT.
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.
