Cabot Options Institute Fundamentals - Yale Endowment Portfolio Alert (EEM, EFA)
I’m going to buy back our short calls in EEM and EFA and immediately sell more call premium going out to the December 1, 2023, expiration cycle. I plan to roll our remaining October 20, 2023 call positions in SPY, TIP and VNQ tomorrow.
Yale Endowment Portfolio
iShares MSCI Emerging Market ETF (EEM)
EEM is currently trading for 38.03.
In the Yale Endowment portfolio, we currently own the EEM January 17, 2025, 29 call LEAPS contract at $12.15. 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 16, 2026, 33 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 (you must own LEAPS in EEM before placing the trade, otherwise you will be naked short calls):
Once you have LEAPS in your possession:
Buy to close EEM October 20, 2023, 41 call for roughly $0.01 or more (adjust accordingly, prices may vary from time of alert)
Once that occurs:
Sell to open EEM December 1, 2023, 39 call for roughly $0.54 or more (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 $12.15 (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.
iShares MSCI EAFE ETF (EFA)
EFA is currently trading for 68.92.
In the Yale Endowment portfolio, we currently own the EFA January 17, 2025, 63 call LEAPS contract at $14.90. 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 16, 2026, 50 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 (you must own LEAPS in EFA before placing the trade, otherwise you will be naked short calls):
Once you have LEAPS in your possession:
Buy to close EFA October 20, 2023, 74 call for roughly $0.02 or more (adjust accordingly, prices may vary from time of alert)
Once that occurs:
Sell to open EFA December 1, 2023, 70.5 call for roughly $0.86 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 5.8%
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 $14.90 (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.
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.