Hi Advanced Traders!
Since it seems like Wall Street is still resistant in putting their capital back into the markets, even with companies delivering strong reports, we can consider setting up some bear call spreads in the meantime.
AMD BCS:
Expiration Date: June 3, 2022
Step 1: Buy 1 $145 call option (delta 0.02) for $19.
Step 2: Sell 1 $110 call option (delta 0.16) for $141.
Step 3: Set up a buy-stop order of 100 shares for $109 per share.
Credit: $141 - $19 = $122
The goal is to have AMD stay below $109 from now until June 3. If it does, both legs will expire worthless and you will be able to keep $122.
If AMD rallies up to $110, you will buy 100 shares for $109 each, convert your bear call spread into a covered call, and sell your first leg.
Since it looks like AMD may be coming down towards a support line and may have a bounce up, I will spread out the times I set up my spreads. I may open some on Monday morning, and towards the last 30 minutes before the markets close on Tuesday afternoon (right before AMD delivers earnings).
My goal is to take advantage of IV crush, where AMD delivers their numbers and the extrinsic value of all contracts shrink right after. This will be statistically favorable for us since we want to have both of our legs lose value and potentially expire worthless on expiration.
Remember that we don't have to wait until expiration to close our positions. If I see that my bear call spreads lose around 50% of value right after the company delivers their numbers, I am willing to close my positions to lock in my gains.
Though this is unlikely to happen during these market conditions, it is also possible that AMD may jump in price to the strike of our second sold leg, causing a huge gap up in price the following day after the earnings announcement. This seems unlikely to me because of the current market sentiment and AMD would have to increase in around $25, which is around a 30% increase in price.
Like always, you can use these numbers as a guide and feel free to tweak the numbers to your own preference and risk-tolerance.
Stay patient, gang. You got this!😀
Steve and the Call to Leap Team
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