Portfolio Alert: Dogs of the Dow Portfolio Alert (VZ, AMGN, IBM)
We have a few positions with calls due to expire tomorrow, so let’s get ahead of it and buy back our short calls and immediately sell more calls to collect another round of premium.
Verizon (VZ)
Verizon is currently trading for 33.51.
In the Dogs of the Dow portfolio, we currently own the VZ January 17, 2025, 30 call LEAPS contract at $10.40. 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, 28 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 VZ before placing the trade, otherwise you will be naked short calls):
Buy to close VZ September 22, 2023, 34 call for roughly $0.04. (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 VZ November 17, 2023, 35 call for roughly $0.44. (Adjust accordingly, prices may vary from time of alert.)
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 $10.40 (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 VZ.
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.
Amgen (AMGN)
AMGN is currently trading for 268.56.
We currently own the AMGN January 17, 2025, 200 call LEAPS contract at $81.35. 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 17, 2025, 210 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 the AMGN September 22, 2023, 275 call for roughly $0.10. (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 AMGN October 20, 2023, 275 call for roughly $3.45. (Adjust accordingly, prices may vary from time of alert.)
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 $81.35 (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 AMGN.
International Business Machines (IBM)
IBM is currently trading for 148.54.
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 17, 2025, 120 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 September 22, 2023, 149 call for roughly $0.40. (Adjust accordingly, prices may vary from time of alert.)
Once that occurs (and you have LEAPS in your possession):
Sell to open IBM October 27, 2023, 152.5 call for roughly $2.58. (Adjust accordingly, prices may vary from time of alert.)
Premium received: 6.0%
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 $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.