🔒 Premium Membership Positions - June 26, 2022

Hi Advanced Traders!

This week, I am planning on setting up some AMZN bear call spreads because I intend on starting wheel positions on them in the future. As for now, if the stock continues to trend lower or sideways, we can collect some cash from this trade.

AMZN BCS:

Here is the AMZN BCS trade:

Expiration Date: July 29, 2022

Step 1: Buy 1 $165 strike call option (delta 0.01) for $9.

Step 2: Sell 1 $135 strike call option (delta 0.16) for $115.

Step 3: Set up a buy-stop order of 100 shares for $134 per share.

Credit: $115 - $9 = $106 per bear call spread

The goal is to have AMZN stay below $135 from now until July 29. If it does, both legs will expire worthless and you will be able to keep $106.

If AMZN rallies up to $135, you will buy 100 shares for $134 each, convert your bear call spread into a covered call, and sell your first leg.

For AMZN to rally from $116 to $135 is a 16% increase in around a 30-day period. Although anything can happen in the markets, I don't think this is likely, especially with the rally from it's previous low of $100 just a couple of days ago and the fearful market environment we are in. The markets tend to take a bit of a breather and large institutions often will take profits. There are also many resistance lines (as denoted above) that AMZN must surpass for it to climb back up to the $135 levels.

📌BCS Notes

By setting up bear call spreads, you are essentially willing to convert your trade into a covered call. You don't initially have to own the 100 shares. However, if the stock rallies, you will want to have the capital ready to cover yourself.

Remember that you don't necessarily have to wait until expiration to end the trade. You can always lock in your profits if your contracts shrink 50-80% in value. This is what majority of professional traders do.

Like I mentioned last week, I noticed that some of you set up bear call spreads, observe the markets rally 1-2 days, and start to panic. Remember that we want to let the statistics play out and that there is a lot of time from now until expiration for quick drops in the underlying and theta decay to do its job.

For those of you who have been setting up bear call spreads over the past 6 months, you most likely see how powerful this trade is since we just need the stock to not really go anywhere in a short amount of time.

I also want to mention that there will be days where we will have volatile relief rallies. If you plan to set up 20 bear call spreads, you can consider setting up 10 now, and another 10 after a relief rally. Like what I always say, "when in doubt, split it out."

Like always, you can use these numbers as a guide and feel free to tweak the numbers to your own preference and risk-tolerance.

Happy trading!😀

Steve and the Call to Leap Team

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