Cabot Options Institute Fundamentals - Alert (IBM, DOW)
We have a couple positions with calls due to expire today, so let’s get ahead of it and buy back our short calls and immediately sell more calls to collect another round of premium.
International Business Machines (IBM)
IBM is currently trading for 142.42.
We currently own the IBM January 17, 2025, 105 call LEAPS contract at $43.15. 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, 110 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
Here is the trade:
Buy to close IBM October 27, 2023, 152.5 call for roughly $0.01. (Adjust accordingly, prices may vary from time of alert.)
Once that occurs (and you have LEAPS in your possession):
Sell to open IBM December 8, 2023, 146 call for roughly $1.52. (Adjust accordingly, prices may vary from time of alert.)
Premium received: 3.5%
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 $43.15 (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 IBM.
Dow Inc. (DOW)
In the Dogs of the Dow Portfolio, we currently own the DOW January 17, 2025, 37.5 call LEAPS contract at $16.85. 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, 35 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 DOW before placing the trade, otherwise you will be naked short calls):
DOW is currently trading at 48.22.
Buy to close the DOW October 27, 2023, 55 call for roughly $0.01. (Adjust accordingly, prices may vary from time of alert.)
Once that occurs (or if you are new to the position and already own LEAPS):
Sell to open DOW December 8, 2023, 50 call for roughly $0.87. (Adjust accordingly, prices may vary from time of alert.)
Premium received: 5.2%
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 $16.85 (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 DOW.