Yale Endowment Portfolio Alert (EEM, EFA)
The Yale Endowment portfolio continues to shine, outperforming our benchmarks with portfolio gains currently reaching 18% since we initiated the portfolio back in mid-June of last year. We have two short call positions due to expire today, so I want to buy them back and immediately sell more call premium.
iShares MSCI Emerging Market ETF (EEM)
EEM is currently trading for 39.74.
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 17, 2025, 34 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 September 1, 2023, 43 call for roughly $0.01 or more (adjust accordingly, prices may vary from time of alert)
Once that occurs:
Sell to open EEM October 20, 2023, 41 call for roughly $0.46 or more (adjust accordingly, prices may vary from time of alert)
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 $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 71.82.
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 17, 2025, 55 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 September 1, 2023, 76.5 call for roughly $0.02 or more (adjust accordingly, prices may vary from time of alert)
Once that occurs:
Sell to open EFA October 20, 2023, 74 call for roughly $0.53 or more (adjust accordingly, prices may vary from time of alert)
Premium received: 3.6%
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.