Please ensure Javascript is enabled for purposes of website accessibility
Fundamentals
Realistic Strategies, Realistic Returns

October 17, 2023

With the October 20, 2023, expiration cycle coming to a close in a few days, it’s time to start buying back the rest of our October 20, 2023 short calls and selling more premium going out 30 to 60 days. I’ll be sending out numerous trade alerts for the various portfolios over the next few days, including a few new names in our active portfolios.

All-Weather Portfolio Alert (IEF, VTI)

With the October 20, 2023, expiration cycle coming to a close in a few days, it’s time to start buying back the rest of our October 20, 2023 short calls and selling more premium going out 30 to 60 days. I’ll be sending out numerous trade alerts for the various portfolios over the next few days, including a few new names in our active portfolios.

iShares Trust 7-10 Year Treasury Bond ETF (IEF)

IEF is currently trading for 89.79.

In the All-Weather portfolio, we currently own the IEF January 17, 2025, 85 call LEAPS contract at $16.35. 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 0.80: the January 16, 2026, 81 calls.

COI_F_101723_IEF_LEAPS.png

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 (you must own LEAPS in IEF before placing the trade, otherwise you will be naked short calls):

Once you have LEAPS in your possession:

Buy to close IEF October 20, 2023, 94 call for roughly $0.03 (Adjust accordingly, prices may vary from time of alert.)

COI_F_101723_IEF_close.png

Once that occurs (or if you are new to the position):

Sell to open IEF December 1, 2023, 91.5 call for roughly $0.66. (Adjust accordingly, prices may vary from time of alert.)

COI_F_101723_IEF_open.png

Premium received: 4.0%

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 $16.35 (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 IEF.

Vanguard Total Stock Market ETF (VTI)

VTI is currently trading for 216.17.

In the All-Weather portfolio, we currently own the VTI January 17, 2025, 165 call LEAPS contract at $55.05. 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 0.80: the January 16, 2026, 180 calls.

COI_F_101723_VTI_LEAPS.png

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: you must own LEAPS in VTI before placing the trade, otherwise you will be naked short calls):

Once you have LEAPS in your possession:

Buy to close VTI October 20, 2023, 225 call for roughly $0.03. (Adjust accordingly, prices may vary from time of alert.)

COI_F_101723_VTI_close.png

Once that occurs:

Sell to open VTI November 17 2023, 220 call for roughly $2.30. (Adjust accordingly, prices may vary from time of alert.)

COI_F_101723_VTI_open.png

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 $55.05 (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 VTI.

An alternative way to approach a poor man’s covered call, if you are a bit more bullish on the stock, is to buy two LEAPS for every call sold. This way you can benefit from the additional upside past your chosen short strike, yet still participate in the benefits of selling premium.

Andy Crowder is a professional options trader, researcher and Senior Analyst at Cabot. 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.