Cabot Options Institute Fundamentals – Dogs of the Dow Alert (VZ, AMGN, WBA, MMM, CSCO, CVX)
With 14 days left until the May 19, 2023, expiration cycle ends, we need to begin the process of rolling the remainder of our short calls and immediately selling more call premium in June.
Verizon (VZ)
Verizon is currently trading for 37.42.
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 0.77: the January 17, 2025, 30 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 May 19, 2023, 41 call for roughly $0.03 (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 June 16, 2023, 39 call for roughly $0.45 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.3%
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)
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, 180 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
AMGN is currently trading for 232.75.
Here is the trade:
Buy to close the AMGN May 19, 2023, 255 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 June 16, 2023, 240 call for roughly $3.10 (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 $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.
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.
Walgreens Boots Alliance (WBA)
We currently own the WBA January 17, 2025, 25 call LEAPS contract at $11.10. 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 0.77: the January 17, 2025, 25 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
WBA is currently trading for 32.18.
Here is the trade:
Buy to close the WBA May 19, 2023, 37.5 call for roughly $0.02 (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 WBA June 23, 2023, 34 call for roughly $0.46 (adjust accordingly, prices may vary from time of alert)
Premium received: 4.1%
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 $11.10 (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 WBA.
3M (MMM)
We currently own the MMM January 17, 2025, 90 call LEAPS contract at $41.40. 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 0.81: the January 17, 2025, 75 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
MMM is currently trading for 103.35.
Here is the trade:
Buy to close the MMM May 19, 2023, 110 call for roughly $0.20 (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 MMM June 23, 2023, 108 call for roughly $1.50 (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 $41.40 (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 MMM.
Cisco Systems (CSCO)
We currently own the CSCO January 17, 2025, 35 call LEAPS contract at $15.65. 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 0.79: the January 17, 2025, 35 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has about 18 to 24 months left until expiration.
CSCO is currently trading for 46.10.
Here is the trade:
Buy to close the CSCO May 19, 2023, 55 call for roughly $0.02 (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 CSCO June 23, 2023, 48 call for roughly $0.98 (adjust accordingly, prices may vary from time of alert)
Premium received: 6.3%
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 $15.65 (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 CSCO.
Chevron (CVX)
We currently own the CVX January 17, 2025, 125 call LEAPS contract at $59.80. You must own LEAPS in order to use this strategy.
If you wish to enter the position and are uncertain about which LEAPS to purchase, please refer to the reports section of your subscriber page or our latest subscriber-exclusive webinar in which I go through the process, step by step, of entering a new position of an already established position.
That being said, based on our approach, the LEAPS contract that works best is the one with a current delta of 0.80: the January 17, 2025, 120 calls. We typically initiate a LEAPS position, with a delta of roughly 0.80, that has roughly 18 to 24 months left until expiration.
CVX is currently trading for 160.18.
Here is the trade:
Buy to close CVX May 19, 2023, 180 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 CVX June 16, 2023, 170 call for roughly $1.67 (adjust accordingly, prices may vary from time of alert)
Premium received: 2.8%
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 $59.80 (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 CVX.
And, as always, if you have any questions, please feel free to email me at andy@cabotwealth.com.