It’s time to initiate a LEAP call recovery tactic on Best Buy (BBY) and Nike (NKE). It involves using the capital from selling our shares of BBY and NKE to purchase long-dated call options.
After purchasing the LEAPS, we will sell short-term calls against them to bring in income, taking advantage of the leverage the LEAPS provide to potentially get back to breakeven faster than we could by selling puts or owning shares and selling calls.
While I am recommending as close to a dollar-for-dollar reinvestment of capital in these recovery positions as possible, how you execute these trades should ultimately conform to your trading style. For instance, you may prefer to reinvest only half of the capital you get when selling your BBY and/or NKE shares.
If you are not familiar with this strategy, please review this coaching session before putting on the trades.
BBY Uncovered Shares
Current Stock Price: $67.23
Cost Basis: $91.94
- Sell shares of BBY at market
- Buy to open 3 BBY Jan 2024 (1/19/24) 50 Calls for around $22.05 each ($66.15 total)
- Sell to open 3 BBY Oct Monthly (10/21) 70 Calls for around $1.40 each ($4.20 total)
New Cost Basis: $88.66*
*Cost basis = $24.71 loss from sale of shares (i.e., current stock price minus cost basis) + $66.15 cost of LEAPS -$4.20 in cash brought in from sale of calls
NKE Uncovered Shares
Current Stock Price: $90.40
Cost Basis: $117.11 (Note: Cost basis was incorrectly listed as $115.60 in the previous alert.)
- Sell shares of NKE at market
- Buy to open 3 NKE Jan 2024 (1/19/24) 70 Calls for around $28.65 each ($85.95 total)
- Sell to open 3 NKE Oct Monthly (10/21) 95 Calls for around $1.02 each ($3.06 total)
New Cost Basis: $109.60*
*Cost basis = $26.71 loss from sale of shares (i.e., current stock price minus cost basis) + $85.95 cost of LEAPS -$3.06 in cash brought in from sale of calls