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Fundamentals
Realistic Strategies, Realistic Returns

November 7, 2022

With the November 18, 2022 expiration cycle only 11 days away, we need to start rolling a few of our positions. I plan on rolling the majority of our November short calls this week. Expect to see two to three more alerts as the week progresses.

Cabot Options Institute Fundamentals – Alert (TIP, EFA, CVX, AAPL)

With the November 18, 2022 expiration cycle only 11 days away, we need to start rolling a few of our positions. I plan on rolling the majority of our November short calls this week. Expect to see two to three more alerts as the week progresses.

Yale Endowment Portfolio

iShares TIPS Bond ETF (TIP)

We currently own the TIP January 19, 2024, 100 call LEAPS contract at $17.10. 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, 70 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 TIP November 18, 2022, 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 TIP December 16, 2022, 107 call for roughly $0.80 (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 $17.10 (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 TIP.

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 0.78 are currently the January 17, 2025, 45 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 November 18, 2022, 59 call for roughly $2.55 (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 December 16, 2022, 63 call for roughly $0.86 (adjust accordingly, prices may vary from time of alert).

Premium received: 4.4%

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.

Growth/Value Portfolio

Chevron (CVX)

We are up about 50% in our position, while shares of CVX stock are up approximately 17% over the same time frame. There is a good chance that I will take off the position and lock in some profits prior to the end of 2022.

We currently own the CVX January 19, 2024, 115 call LEAPS contract at $48.60. 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. Based on our approach, the LEAPS contract that works best is the one with a current delta of 0.80: the January 17, 2025, 130 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 CVX November 25, 2022, 177.5 call for roughly $9.75 (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 CVX December 16, 2022, 195 call for roughly $3.30 (adjust accordingly, prices may vary from time of alert)

Premium received: 6.8%

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 $48.60 (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 CVX.

Buffett Patient Investor Portfolio

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.

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. Based on our approach, the LEAPS contract that works best is the one with a current delta of 0.80: the January 17, 2025, 105 calls. We typically initiate a LEAPS position, with a delta of roughly 0.79, that has roughly 18 to 24 months left until expiration.

Here is the trade:

Buy to close AAPL November 18, 2022, 155 call for roughly $0.17 (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 December 16, 2022, 150 call for roughly $1.95 (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 $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.