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Fundamentals
Realistic Strategies, Realistic Returns

June 13, 2023

Cabot Options Institute Fundamentals – Dogs of the Dow Alert (DOW, INTC)

Dow Inc. (DOW)

I am buying back our short calls today and immediately selling more premium. Our June 16, 2023, 55 calls are essentially worthless, so let’s buy back our calls, lock in some profits and immediately sell more call premium.

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 0.79: the January 17, 2025, 40 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 53.29.

Buy to close the DOW June 16, 2023, 55 call for roughly $0.07 (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 July 28, 2023, 55 call for roughly $1.08 (adjust accordingly, prices may vary from time of alert)

COI_F_alert_061323_DOW.png

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 $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.

Intel (INTC)

We currently own the INTC January 17, 2025, 17.5 call LEAPS contract at $11.40. 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 0.81: the January 17, 2025, 25 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.

INTC is currently trading for 33.66.

Here is the trade:

Buy to close the INTC June 16, 2023, 32.5 call for roughly $1.34 (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 the INTC July 21, 2023, 36 call for roughly $0.74 (adjust accordingly, prices may vary from time of alert)

COI_F_alert_061323_INTC.png

Premium received: 6.5%

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 $11.40 (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 INTC.

As always, please do not hesitate to email me with any questions at andy@cabotwealth.com.

Cabot Options Institute Fundamentals – All-Weather Portfolio Alert (VTI)

Vanguard Total Stock Market ETF (VTI)

VTI is currently trading for 217.35.

In the All-Weather portfolio, we currently own the VTI January 17, 2025, 165 call LEAPS contract at $55.05. 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, 185 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 VTI before placing the trade, otherwise you will be naked short calls):

Once you have LEAPS in your possession:

Buy to close VTI June 16, 2023, 215 call for roughly $2.70 or more (adjust accordingly, prices may vary from time of alert)

Once that occurs:

Sell to open SPY July 21, 2023, 220 call for roughly $2.15 or more (adjust accordingly, prices may vary from time of alert)

COI_F_alert_061323_VTI.png

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 $55.05 (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 VTI.

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.

Andy Crowder is a professional options trader, researcher and Senior Analyst at Cabot. Formerly with Oppenheimer & Co. in New York, Andy has leveraged his investment experience to develop his statistically based options trading strategy which applies probability theory to option valuations in order to execute risk-controlled trades. This proprietary strategy has been refined through two decades of research and real-world experience and has been featured in the Wall Street Journal, Seeking Alpha, and numerous other financial publications. Andy has helped thousands of option traders learn and implement his meticulous rules-driven options trading strategies through highly attended conferences, one-on-one coaching, webinars, and his work as a financial columnist. He currently resides in Bolton Valley, Vermont and when he’s not trading, teaching and writing about options, he enjoys spending time with his wife and two daughters, backcountry skiing, biking, running and enjoying all things outdoors.