Cabot Options Institute Fundamentals – Portfolio Alerts (JPM, SPY, CSCO, CVX)
I will be sending out numerous alerts over the next few days. With 18 days left until the August expiration cycle, now is the ideal time to begin looking to buy back our short calls and sell more call premium going out to September, which has 53 days left until expiration.
Moreover, as I spoke about on our subscriber-only call last week, I plan to add a new position to both of our active portfolios this week.
Dogs of the Dow Portfolio - JPMorgan (JPM)
After today’s trade, not including the premium sold in today’s trade alert, our JPM poor man’s covered call position is up 40.4% YTD while the underlying stock is only up 15.3%. As I said just over a week ago, so far, so good in 2023 for JPM, and if the market keeps rallying, we should see substantial returns in the overall portfolio.
We currently own the JPM January 17, 2025, 100 call LEAPS contract at $46.20. 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.
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, 125 calls.
We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
JPM is currently trading for 158.44.
Here is the trade:
Buy to close JPM August 18, 2023, 155 call for roughly $4.95 (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 September 15, 2023, 165 call for roughly $1.76 (adjust accordingly, prices may vary from time of alert)
Premium received: 3.8%
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.
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.
Yale Endowment Portfolio - SPDR S&P 500 ETF (SPY)
The S&P 500 continues to rally and as a result, our SPY position is up 25% since we added it to the portfolio in early June 2022. With SPY pushing through our short strike and reaching a delta of around 0.60, I‘ve decided to go ahead and buy back our short calls and immediately sell more. This will allow us to increase our long deltas and in turn our exposure to the more upside momentum.
SPY is currently trading for 454.10.
In the Yale Endowment portfolio, we currently own the SPY January 17, 2025, 345 call LEAPS contract at $98.00. 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, 385 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 SPY before placing the trade, otherwise you will be naked short calls):
Once you have LEAPS in your possession:
Buy to close SPY August 18, 2023, 452 call for roughly $7.87 (adjust accordingly, prices may vary from time of alert)
Once that occurs:
Sell to open SPY September 15, 2023, 466 call for roughly $3.96 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.0%
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 $98.00 (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 SPY.
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.
Dogs of the Dow Portfolio - Cisco Systems (CSCO)
Our Cisco position is up 45% YTD while the underlying stock is only up 11.1%, once again showing the power of using poor man’s covered calls.
CSCO has rallied higher and pushed through our short call strike. As a result, I want to buy back our short calls, immediately sell more call premium and increase our deltas to benefit from any further upside.
We currently own the CSCO January 17, 2025, 35 call LEAPS contract at $15.65. 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 17, 2025, 42.5 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
CSCO is currently trading for 53.23.
Here is the trade:
Buy to close CSCO August 18, 2023, 52.5 call for roughly $1.98. (Adjust accordingly, prices may vary from time of alert.)
Once that occurs (or if you are new to the position):
Sell to open CSCO September 15, 2023, 55 call for roughly $1.00. (Adjust accordingly, prices may vary from time of alert.)
Premium received: 6.4%
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 $15.65 (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 CSCO.
Dogs of the Dow Portfolio - Chevron (CVX)
We currently own the CVX January 17, 2025, 125 call LEAPS contract at $59.80. You must own LEAPS in order to use this strategy.
That being said, based on our approach, the LEAPS contract that works best is the one with a current delta of 0.80: the January 17, 2025, 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.
CVX is currently trading for 162.13.
Here is the trade:
Buy to close CVX August 18, 2023, 160 call for roughly $5.20. (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 CVX September 15, 2023, 170 call for roughly $1.92. (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 $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.
As always, please do not hesitate to email me with any questions at andy@cabotwealth.com.