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Fundamentals
Realistic Strategies, Realistic Returns

March 1, 2023

Cabot Options Institute Fundamentals – All-Weather Portfolio Alert (GLD, TLT, IEF)

I’ve decided to hold on to my current LEAPS positions. Theta, or time decay, is still incredibly low so I’m going to hold on for another expiration cycle but plan to sell my LEAPS as we near the April 21, 2023, expiration cycle. However, for those that are new to the Fundamentals service and wish to open a position, as always, with each trade alert I include the LEAPS position that currently works best given our guidelines.

SPDR Gold Trust ETF (GLD)

We currently own the GLD January 19, 2024, 145 call LEAPS contract at $37.00. You must own LEAPS in order to use this strategy.

*Based on our approach, the LEAPS contract that works best is the one with a current delta of 0.80: the January 17, 2025, 159 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:

Buy to close GLD March 17, 2023, 180 call for roughly $0.12 or less (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 GLD April 21, 2023, 176 call for roughly $1.82 or more (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 $37.00 (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 GLD.

iShares 20-Year Bond ETF (TLT)

We currently own the TLT January 19, 2024, 85 call LEAPS contract at $29.10. 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 0.78: the January 17, 2025, 80 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.

Here is the trade:

Buy to close TLT March 17, 2023, 108 call for roughly $0.10 (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 TLT April 21, 2023, 104 call for roughly $1.62 (adjust accordingly, prices may vary from time of alert)

Premium received: 5.6%

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 $29.10 (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 TLT.

iShares 7-10 Year Treasury Bond ETF (IEF)

We currently own the IEF January 19, 2024, 85 call LEAPS contract at $19.00. You must own LEAPS in order to use this strategy.

Based on our approach, the LEAPS contracts with a delta of 0.78 are currently the January 17, 2025, 85 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:

Buy to close IEF March 17, 2023, 99 call for roughly $0.03 (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 IEF April 21, 2023, 97 call for roughly $0.69 (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 $19.00 (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 IEF.

Yale Endowment Portfolio: Alert (SPY, VNQ, EEM, EFA)

I’ve decided to hold on to my current LEAPS positions. Theta, or time decay, is still incredibly low so I’m going to hold on for another expiration cycle, but plan to sell my LEAPS as we near the April 21, 2023 expiration cycle. However, for those that are new to the Fundamentals service and wish to open a position, as always, with each trade alert I include the LEAPS position that currently works best given our guidelines.

SPDR S&P 500 ETF (SPY)

We currently own the SPY January 19, 2024, 290 call LEAPS contract at $117. You must own LEAPS in order to use this strategy.

Based on our approach, the LEAPS contract that works best is the one with a current delta of 0.80: the January 17, 2025, 310 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:

Buy to close SPY March 17, 2023, 418 call for roughly $0.31 (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 SPY April 21, 2023, 410 call for roughly $4.61 (adjust accordingly, prices may vary from time of alert)

Premium received: 3.9%

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 $117 (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.

Vanguard Real Estate ETF (VNQ)

We currently own the VNQ January 19, 2024, 70 call LEAPS contract at $23.25. You must own LEAPS in order to use this strategy.

Based on our approach, the LEAPS contract that works best is the one with a current delta of 0.81: the January 17, 2025, 60 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:

Buy to close VNQ March 17, 2023, 93 call for roughly $0.08 (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 VNQ April 21, 2023, 88 call for roughly $1.10 (adjust accordingly, prices may vary from time of alert)

Premium received: 4.7%

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 $23.25 (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 VNQ.

iShares Emerging Market ETF (EEM)

We currently own the EEM January 19, 2024, 30 call LEAPS contract at $11.50. You must own LEAPS in order to use this strategy.

Based on our approach, the LEAPS contracts with a delta of 0.80 are currently the January 17, 2025, 29 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:

Buy to close EEM March 17, 2023, 41 call for roughly $0.10 (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 EEM April 21, 2023, 41 call for roughly $0.40 (adjust accordingly, prices may vary from time of alert)

Premium received: 3.5%

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 $11.50 (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 EEM.

iShares EAFE ETF (EFA)

We currently own the EFA January 19, 2024, 45 call LEAPS contract at $19.50. You must own LEAPS in order to use this strategy.

The LEAPS contracts with a delta of 0.79 are currently the January 17, 2025, 61 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.

Here is the trade:

Buy to close EFA March 17, 2023, 72 call for roughly $0.19 (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 EFA April 21, 2023, 72 call for roughly $0.79 (adjust accordingly, prices may vary from time of alert).

Premium received: 4.1%

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 $19.50 (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 EFA.

Buffett Patient Investor Portfolio – Alert (AAPL)

Apple (AAPL)

We currently own the AAPL January 19, 2024, 130 call LEAPS contract at $54.20. You must own LEAPS in order to use this strategy.

Based on our approach, the LEAPS contract that works best is the one with a delta of 0.79: currently the January 17, 2025, 115 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:

Buy to close AAPL March 3, 2023, 152.5 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 AAPL April 21, 2023, 155 call for roughly $2.50 (adjust accordingly, prices may vary from time of alert)

Premium received: 4.6%

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 $54.20 (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 AAPL.

Andy Crowder is a professional options trader, researcher and Chief Analyst of Cabot Options Institute. 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.