Cabot Options Institute Fundamentals – Dogs of the Dow Alert (JPM, AMGN, CVX)
JPMorgan (JPM)
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, 110 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 142.54.
Here is the trade:
Buy to close JPM June 16, 2023, 145 call for roughly $0.20 (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 JPM July 28, 2023, 147 call for roughly $1.85 (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 $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.
Amgen (AMGN)
We currently own the AMGN January 17, 2025, 200 call LEAPS contract at $81.35. 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, 170 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
AMGN is currently trading for 222.61.
Here is the trade:
Buy to close the AMGN June 16, 2023, 240 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 AMGN July 21, 2023, 230 call for roughly $2.58 (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 $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.
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, 120 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 159.66.
Here is the trade:
Buy to close CVX June 16, 2023, 170 call for roughly $0.05 (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 CVX July 28, 2023, 165 call for roughly $2.93 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.9%
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 $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.
Yale Endowment Portfolio Alert (EEM, TIP)
iShares MSCI Emerging Market ETF (EEM)
EEM is currently trading for 40.57.
In the Yale Endowment portfolio, we currently own the EEM January 17, 2025, 29 call LEAPS contract at $12.15. 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, 34 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 EEM before placing the trade, otherwise you will be naked short calls):
Once you have LEAPS in your possession:
Buy to close EEM June 16, 2023, 40 call for roughly $0.65 or more (adjust accordingly, prices may vary from time of alert)
Once that occurs:
Sell to open EEM July 28, 2023, 41.5 call for roughly $0.48 or more (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 $12.15 (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 EEM.
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 TIPS ETF (TIP)
TIP is currently trading for 107.52.
In the Yale Endowment portfolio, we currently own the TIP January 17, 2025, 95 call LEAPS contract at $16.50. 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, 95 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 TIP before placing the trade, otherwise you will be naked short calls):
Once you have LEAPS in your possession:
Buy to close TIP June 16, 2023, 112 call for roughly $0.02 or more (adjust accordingly, prices may vary from time of alert)
Once that occurs:
Sell to open TIP August 18, 2023, 109 call for roughly $0.60 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 3.6%
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 $16.50 (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 TIP.
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.