Oct 3, 20212 min
Hey Advanced Traders!
Due to the current uncertainty in the markets, I'm thinking we can set up some more spreads and collect some premiums while we patiently wait for the markets to calm themselves down.
If you already have AMD bear call spreads, you most likely have made a lot of profit from the past several weeks. You can consider closing some of them out if you haven't done so already and rolling out with new ones with more extrinsic value.
You can see that AMD has been still trending neutrally over the past several weeks. My plan is to set up some spreads before they announce earnings towards the last week of October. If you don't feel comfortable trading during this time, it's no problem. You can sit this one out and wait until after earnings.
Here are the details of the trade:
Expiration Date: October 22, 2021
Step 1: Buy 1 $125 Strike Call (Delta 0.04) for $16
Step 2: Sell 1 $113 Strike Call (Delta 0.16) for $77
Step 3: Set up a buy stop order for 100 shares at $112
Profit/Credit Received: $77 - 16 = $61
The goal is for AMD to trend neutrally from now until the expiration date, which is around 3 weeks away. The probability of AMD rising around $10 in a 3 week time period is around a 16% probability, hence the delta 0.16 second leg.
If by expiration, AMD stays below $113, both your call options will expire worthless and you will get to keep the entire $61 credit.
If by expiration, AMD goes above $113 you will purchase 100 shares of AMD at $112 and convert the trade into a covered call. You can then sell your first $125 strike call leg.
Scaling Your Contracts
A lot of you have been doing incredibly well with setting up your bear call spreads. Remember that you can scale your contracts only if you have an account size and a little bit of margin to do so.
If you have 1 contract open, that results in an $61 profit.
If you have 10 contracts open, that results in an $610 profit.
If you don't have an account size to do multiple contracts yet, don't worry. Your goal is to consistently deposit more money into your account, so the value can compound over time.
Of course, you don't necessarily have to let your bear call spreads wait until expiration to close your position. If you see your legs shrink in value over the next couple of days due to a further drop in AMD or theta decay, you can always consider closing your position early.
Once you lock in your profits, I would hold it in cash for now. I would wait until we hear some positive news and see retracement in our favorite long-term, dividend-paying stocks before adding onto our positions.
Like always, feel free to tweak the numbers around so it fits your own risk tolerance.
Happy trading!
Steve and the Call to Leap Team
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