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Fundamentals
Realistic Strategies, Realistic Returns

October 20, 2022

CVX jumped over the past two days. As a result, we need to roll our October 21 calls into November. The jump in the stock has pushed our return to upwards of 35%, while the underlying stock is sitting at a 7.0% gain since we added it to the portfolio.

Cabot Options Institute Fundamentals – Alert (CVX)

CVX jumped over the past two days. As a result, we need to roll our October 21 calls into November. The jump in the stock has pushed our return to upwards of 35%, while the underlying stock is sitting at a 7.0% gain since we added it to the portfolio.

GROWTH/VALUE PORTFOLIO

Chevron (CVX)

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 19, 2024, 120 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 October 21, 2022, 165 call for roughly $5.60 (adjust accordingly, prices may vary from time of alert)

COI_F_102022_CVX_close-1536x216.png

Once that occurs (or if you are new to the position and already own LEAPS):

Sell to open CVX November 25, 2022, 177.5 call for roughly $4.40 (adjust accordingly, prices may vary from time of alert)

COI_F_102022_CVX_open-1-1536x206.png

Premium received: 9.1%

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 $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.

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.