Cabot Options Institute Fundamentals – Yale Endowment Portfolio Alert (SPY)
SPDR S&P 500 ETF (SPY)
We have one short call position left in May that needs to be rolled, SPY. There is little to no value left in our May 19, 2023, 420 calls, so as a result, I want to buy back our 420 calls and immediately sell more calls. This should help to bring our deltas back in line as well.
Our return in SPY stands at 11.5% versus shares of the benchmark ETF which is roughly half the amount at 6%.
We currently own the SPY January 17, 2025, 345 call LEAPS contract at $98.00. 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.
Here is the trade:
Buy to close SPY May 19, 2023, 420 call for roughly $0.14 or more (adjust accordingly, prices may vary from time of alert)
Once that occurs:
Sell to open SPY June 16, 2023, 422 call for roughly $2.59 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 2.6%
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 $98.00 (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 SPY.
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.
