Cabot Options Institute Fundamentals – All-Weather Portfolio Alert (GLD, TLT)
With the market tumbling, GLD and TLT have surged higher. As a result, the deltas of both positions are at parity, so we need to buy back our short calls and sell more. Remember, as long as we remain delta positive in our overall position, and the position continues to trade sideways or higher, we are making money. It is when the deltas of our overall position are neutral or negative that we start to lose money as the underlying pushes higher.
As always, if you have any questions, please feel free to email me at andy@cabotweath.com.
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, 168 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 April 21, 2023, 176 call for roughly $6.75 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, 183 call for roughly $3.40 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 9.2%
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 $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, 85 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 April 21, 2023, 104 call for roughly $5.40 (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, 110 call for roughly $2.40 (adjust accordingly, prices may vary from time of alert)
Premium received: 8.3%
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.
