May 28, 20222 min
Hi Advanced Traders!
Let's set up some more bear call spreads on AMD this week. If you have previous spreads that have decayed in value, you can close out your positions to lock in your profits. You can consider setting up bear call spreads with further expirations to collect higher premiums from the higher extrinsic (time) values.
AMD BCS:
I don't think AMD will necessarily rally from $102 to $125 within the next 45 days as this will be around a 25% rally. Given the current market conditions, I believe this is an unlikely event.
Expiration Date: July 15, 2022
Step 1: Buy 1 $150 strike call option (delta 0.03) for $18.
Step 2: Sell 1 $125 strike call option (delta 0.16) for $132.
Step 3: Set up a buy-stop order of 100 shares for $124 per share.
Credit: $132 - $18 = $114
The goal is to have AMD stay below $125 from now until July 15. If it does, both legs will expire worthless and you will be able to keep $114.
If AMD rallies up to $125, you will buy 100 shares for $124 each, convert your bear call spread into a covered call, and sell your first leg.
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 in the beginning. 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.
Also be mindful of how many bear call spreads you open. I know many of you have been profitable with this trade over the past several months. Again, I recommend that you have capital to cover yourselves in case AMD starts to rise again.
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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