Hi Advanced Traders!
Let's set up some more bear call spreads to collect premium.
Bear Call Spread
If you have some spreads set up on AMD from weeks before with around an 80% profit, you can consider closing them and starting new ones with further expiration dates.
If you have been setting up these bear call spreads in the past few weeks, you should be able to see how quick your contract values shrink due to the downward movement of the underlying stock and theta decaying away each leg.
Remember that you can always close your contracts early to lock in your profits!
Expiration Date: March 18, 2022
Step 1: Buy 1 $160 call option (delta 0.03) for $19.
Step 2: Sell 1 $130 call option (delta 0.21) for $202
Step 3: Set up a buy-stop order of 100 shares for $129 per share
Credit: $202 - $19 = $183
The goal is to have AMD stay below $130 from now until March 11. If it does, both legs will expire worthless and you will be able to keep $111.
If AMD rallies up to $130, you will buy 100 shares for $129 each, convert your bear call spread into a covered call, and sell your first leg.
Remember that I am long-term bullish on AMD, but short-term neutral to slightly bearish. If you want to set up a BCS on AMD, you want to be willing to purchase the shares to cover for your second leg.
If you have more capital or want to use margin, you can set up multiple contracts at once. Some members may set up 10 contracts at once, meaning they can collect $1,830 of credit.
In the end, feel free to tweak the numbers to your own risk-tolerance.
Why Aren't We Buying LEAPS?
At the moment, the markets are too choppy to purchase any LEAPS. I would only purchase LEAPS when we start to see an uptrend in the markets.
If you purchase a LEAPS now, you may run into the problem of having your underlying stock not going anywhere, which will have theta decay the value of your LEAPS option.
Stay patient at the moment. You can keep depositing money into your account, collect premiums from your dividends, covered calls, BCSs, and PMCCs, and let your cash sit as cash if you don't feel comfortable investing. Once we start to see markets move back up, we will have the ammo ready to fire.
Stay patient everyone! 😀
Steve and the Call to Leap Team
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