Cabot Options Institute Fundamentals – Dogs of the Dow Portfolio Alert (CSCO)
As I stated in our earlier alert, I will be sending out numerous alerts over the next few days. With 5 days left until the October expiration cycle, now is the ideal time to begin looking to buy back our short calls and sell more call premium going out to the November expiration cycle.
Cisco Systems (CSCO)
Our Cisco position is up over 35% YTD while the underlying stock is only up 12.5%, once again showing the power of using poor man’s covered calls.
We allowed our CSCO calls to expire worthless at the October 13 expiration cycle, thereby reaping all the premium on the trade. Now it’s time to sell some more call premium.
We currently own the CSCO January 17, 2025, 35 call LEAPS contract at $15.65. 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 roughly 0.80: the January 17, 2025, 42.5 calls.
We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
CSCO is currently trading for 54.21.
Here is the trade (remember, we are not selling naked calls, you must own LEAPS before placing the trade below):
Sell to open CSCO November 24, 2023, 57 call for roughly $0.65. (Adjust accordingly, prices may vary from time of alert.)
Premium received: 4.2%
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 $15.65 (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 CSCO.
As always, please do not hesitate to email me with any questions at andy@cabotwealth.com.