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🔒 Premium Membership Positions - September 4, 2022

Updated: Sep 6, 2022

Hi Advanced Traders!


If you recently set up some bear call spreads, hopefully you were able to close out your positions and lock in your profits.


With the free capital, we can now set up some new bear call spreads, but with a little twist (I give a second option on how you can consider trading it).

Again, remember that by setting up bear call spreads, you are willing to purchase shares to cover yourself in case the underlying stock rises up.


AMZN Bear Call Spreads

Looking at the recent highs of AMZN, we see that the stock had some difficulty passing the $144 level. Because of this, I'm planning on selling my second leg at either the $144 or $143 strike.


This week, I'm recommending two different ways to set up bear call spreads depending on your outlook for the next month. If you're more neutral/bearish or see that AMZN starts to break the magenta support line, you can choose option 1. If you're more neutral/bullish, you can choose option 2.


Option 1 (neutral/bearish):

Expiration Date: October 7, 2022

Step 1: Buy 1 $170 strike call option (delta 0.01) for $8.

Step 2: Sell 1 $144 strike call option (delta 0.16) for $111.

Step 3: Set up a buy stop order for 100 shares for $143 to cover

Credit received: $111 - $8 = $103 per spread


Option 2 (neutral/bullish):

Expiration Date: October 7, 2022

Step 1: Buy 25 shares of AMZN at the current market price of ~127.

Step 2: Buy 1 $170 strike call option (delta 0.01) for $8.

Step 3: Sell 1 $144 strike call option (delta 0.16) for $111.

Step 4: Set up a buy stop order for 75 shares for $143 to cover

Credit received: $111 - $8 = $103 per spread


Since it looks like we are at a potential support line (denoted in magenta), we may bounce off of it and move a bit higher. If AMZN starts to trend towards our second leg's strike price, we will only have to purchase 75 shares to cover ourselves since we already purchased 25 shares in the beginning. Once we convert our bear call spread into a covered call trade and if we get our shares called away, we will receive more capital gains since we will be able to make the difference between $127 and $144 for our initial 25 shares.


All in all, make sure to see if these trades fit your own risk tolerance. You can also tweak some of the numbers around so you feel more comfortable. And of course, you can always practice these trades in a paper trading account to understand the numbers better.


As always, please don't get too greedy. Many of you made thousands of dollars during the downward market in the first half of the year. However, some of you had too many spreads open and weren't able to cover yourselves when we had a reversal back up.


Remember that the markets will eventually go back higher in the long run, so it's important that you prepare yourself when this happens.


Trade responsibly and stay patient!


-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.

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