Cabot Options Institute Fundamentals – Dogs of the Dow Alert (WBA, MMM)
We need to sell more premium in WBA and MMM today. I will be selling more premium in several of our positions throughout the various Fundamentals portfolios, including a few brand-new positions in our Growth/Value and Buffett portfolios.
Walgreens Boots Alliance (WBA)
We currently own the WBA January 17, 2025, 25 call LEAPS contract at $11.10. 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, 22.5 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
WBA is currently trading for 31.65.
Here is the trade (you must own LEAPS prior to making the trade below):
Sell to open WBA August 4, 2023, 33 call for roughly $0.78 (adjust accordingly, prices may vary from time of alert)
Premium received: 7.1%
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 $11.10 (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 WBA.
3M (MMM)
We currently own the MMM January 17, 2025, 90 call LEAPS contract at $41.40. 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 0.80: the January 17, 2025, 70 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
MMM is currently trading for 100.29.
Here is the trade (you must own LEAPS prior to making the trade below):
Sell to open MMM August 18, 2023, 105 call for roughly $2.43 (adjust accordingly, prices may vary from time of alert)
Premium received: 5.8%
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 $41.40 (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 MMM.
