🔒 Premium Membership Positions - September 2, 2021

Hey Advanced Traders!

Let's talk about some calendar spreads and bear call spreads for V and AMD this week!

V

It looks like V is still moving downwards and that we had a big drop this week.

If you set up a calendar spread 1-2 weeks ago, you can consider rolling out your call to collect more premium as we patiently wait for the stock to retrace.

For example, if you sold a September 17, 2021 $245 strike call, you can consider buying back your call for $26. For this, you would "buy to close" your position. You can then cancel your buy stop order of 100 shares for $244.

You can then go out further in date, like the October 1, 2021 expiration date. You can choose to sell the $240 strike call for $70. You would then set up a buy stop order to purchase 100 shares of V at $239.

Let's think about this. V rising from $224 to $240 is around a 7% increase within the month. If there is this rise, it may be an indicator that institutions are putting their money back into this stock since it requires a large sum of money to move this S&P500/DOW30 stock that many points up. It will also show that the stock's downward trend will be broken in the short-term.

Remember, when you sell a front-month call against your previously owned LEAPS option, you are essentially lowering the cost basis of your LEAPS. In this scenario, you would lower your cost basis by $70.

If by expiration, Visa stays below $240, your front-month call will expire worthless and you will get to keep the entire $70 premium.

If by expiration, Visa goes up above $240, you will need to cover yourself by purchasing 100 shares of V at $224.

Again, please remember that if you set up a calendar spread/PMCC, you will need to cover yourself in case the price of the stock goes up above your strike. This means that you will need to have the capital to do so, either with cash or margin.

AMD

AMD has been trending sideways for the past couple of days. If you set up your bear call spread a couple of weeks ago, you most likely observe that both of your option legs have fallen in value due to theta decay and the stock price not going anywhere. If that's the case for you, you can consider closing out both of your positions (sell to close and buy to close) and canceling your buy stop order. You will essentially be locking in your profits. 😊

For this week's trade on AMD, I recommend you watching the video where I teach you on first buying 25 shares before setting up your bear call spread. This way, the trade I describe here will make more sense.

Once you close your initial bear call spread trade, you can consider rolling out your trade to collect more premium.

Here are the steps for this trade:

Expiration Date: September 24, 2021

Step 1: Buy 25 shares of AMD at $109

Step 2: Buy 1 $140 strike call with a delta 0.02 for $11

Step 3: Sell 1 $120 strike call with a delta 0.17 for $85

Step 4: Set a buy stop order of 75 shares at $119

Profit/Credit Received: $85 - 11 = $74

The goal is for AMD to trend neutrally from now until the expiration date.

If by expiration, AMD stays below $120, both your call options will expire worthless and you will get to keep the entire $74 credit.

If by expiration, AMD goes above $120, you will purchase 75 shares of AMD at $119 and convert the trade into a covered call. You can then sell your first $150 strike call leg.

Remember that if AMD runs up in price, it will actually be beneficial for your initial 25 share position since the value of those shares will increase.

Conclusion

Feel free to tweak the numbers around so it fits your own risk tolerance. You can always sell your V call option at a higher or lower strike, or even 1 week before or after my expiration date recommendation. For the AMD BCS, you can choose to not buy any shares initially or even buy more than 25 shares, so you don't have to purchase that many shares if you have to cover yourself. All in all, it is more important to understand the concepts of these trades and to fit them into your own risk tolerance level.

Okay gang! If you have any questions, feel free to let us know!

Have a wonderful Labor Day weekend! You deserve it! 😎

Steve and the Call to Leap Team

The following article is strictly the opinion of the author and is to not be considered financial/investment advice. Call to Leap LLC and the author of this article does not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article.