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Fundamentals
Realistic Strategies, Realistic Returns

October 17, 2022

We still have our DBC and CVX positions on for the October 21 expiration cycle. I intend to hold on to both and monitor how each performs as we lead up to the end of the October expiration cycle. As it stands, there is a good chance I will allow both to expire worthless and sell more call premium early next week. But as always, the price action over the coming days will dictate how we handle each position.

Cabot Options Institute Fundamentals – Alert (EEM, AAPL)

We still have our DBC and CVX positions on for the October 21 expiration cycle. I intend to hold on to both and monitor how each performs as we lead up to the end of the October expiration cycle. As it stands, there is a good chance I will allow both to expire worthless and sell more call premium early next week. But as always, the price action over the coming days will dictate how we handle each position.

YALE ENDOWMENT PORTFOLIO

iShares Emerging Market ETF (EEM)

We currently own the EEM January 19, 2024, 30 call LEAPS contract at $11.50. 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 contracts with a delta of 0.80 are currently the January 19, 2024, 27 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 EEM October 28, 2022, 39.5 call for roughly $0.03 (adjust accordingly, prices may vary from time of alert)

COI_F_101722_EEM_close-1536x203.png

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

Sell to open EEM November 25, 2022, 36.5 call for roughly $0.70 (adjust accordingly, prices may vary from time of alert)

COI_F_101722_EEM_open-1536x215.png

Premium received: 6.1%

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 $11.50 (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 EEM.

BUFFET 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 19, 2024, 105 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 AAPL October 21, 2022, 165 call for roughly $0.01 (adjust accordingly, prices may vary from time of alert)

COI_F_101722_AAPL_close-1536x299.png

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

Sell to open AAPL November 18, 2022, 155 call for roughly $2.04 (adjust accordingly, prices may vary from time of alert)

COI_F_101722_AAPL_open-1536x308.png

Premium received: 3.8%

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 $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.