Cabot Options Institute Fundamentals – Alert (MMM)
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 0.81: the January 17, 2025, 75 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 107.51.
Here is the trade:
Buy to close the MMM March 17, 2023, 120 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 MMM April 14, 2023, 112 call for roughly $1.88 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.5%
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 $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.
And, as always, if you have any questions, please feel free to email me at andy@cabotwealth.com.