Buffett’s Patient Investor Portfolio – Texas Instruments (TXN)
We are adding another stock to our active, Buffett’s Patient Investor portfolio today. Again, my intent is to ramp up the portfolio to a minimum of five positions over the coming expiration cycles, with the ultimate goal of having eight to 10 positions. But we will continue to stay methodical in our approach and add positions when it makes sense.
TXN is currently trading for 178.32.
Here is the trade:
Buy to open the TXN January 17, 2025, 135 call for roughly $53.05 (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 TXN September 15, 2023, 185 call for roughly $3.05 (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 $53.05 (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 TXN. That being said, since TXN resides in one of our active portfolios, there is the potential we take the trade off during our periodic monthly rebalancing which falls around each options expiration cycle.
*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.
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com
Dogs of the Dow Portfolio - Dow Inc. (DOW)
I am buying back our short calls today and immediately selling more premium. Our July 28 , 2023, 55 calls are slightly in the money and due to expire today, so let’s buy back our calls, lock in some profits and immediately sell more call premium. Our position is currently up 25% YTD.
In the Dogs of the Dow Portfolio, we currently own the DOW January 17, 2025, 37.5 call LEAPS contract at $16.85. 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 roughly 18 to 24 months left until expiration.
Here is the trade (you must own LEAPS in DOW before placing the trade, otherwise you will be naked short calls):
DOW is currently trading at 55.48.
Buy to close the DOW July 28, 2023, 55 call for roughly $0.51. (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 DOW September 15, 2023, 57.5 call for roughly $0.64. (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 $16.85 (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 DOW.
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.