It was another day of selloff for Tesla as the stock continues to be hit by negative news, Elon Musk’s impending selling of shares, his brother’s sale of Tesla shares, Hertz’s deal yet to be signed, and poorer China-made vehicle sales in October.
Tesla’s phenomenal run seems to be ending sooner than I have expected and I made the decision to sell away my last Tesla LEAPS contract to lock in a 358% profit from the premium I paid when I bought the Tesla LEAPS on 15 Oct 21, less than a month ago.
With the profits collected from this sale, I went on to buy:
1 x Nvidia LEAPS, Strike Price $600 Expiring on 19 Jan 24
2 x Microsoft LEAPS, Strike Price $450 Expiring on 19 Jan 24
I bought Nvidia LEAPS because I feel that there is still room for upside, especially with the 3Q earnings announcement coming up next week. Nvidia has a huge role to play in the rise of EV and the metaverse, as it is already the world’s dominant producer of graphics (GPU) chips and it’s AI chips would be highly sought after in data centres or autonomous vehicles.
However, I may be wrong on this, so I bought a LEAPS contract that is 2 years out so that I can still average down if the share price of Nvidia drops significantly. This is my way of lowering the risk when buying options of a stock that is at an all-time high price.
Meanwhile, I also took the opportunity to accumulate LEAPS of the world’s most valuable company, Microsoft. Like Apple, Microsoft is a slow and steady ship that can brave through the toughest thunderstorms that may come in months ahead and continue to increase their earnings and raise their share price. I bought 2 lower delta (lower cost) LEAPS with the potential of 5x returns of share price gains (IV is low currently for Microsoft shares and that favours the buyers). The expiration dates of these LEAPS are in Jan 2024. I also sold off a previous Microsoft LEAPS contract expiring in Sept 2022 and bagged a profit of 67.86% of the initial premium I paid.
One of my current strategies is to sell off the LEAPS contracts that are already profitable but due to expire next year (between June to Dec 2022) and replenish my LEAPS portfolio with new LEAPS contracts that extend to 2024. In this way, I lower the risk of the shorter LEAPS contracts working against me if the share price falls and I give myself more runway to average down for the longer term LEAPS in the worst-case scenarios where share prices drop. If everything goes according to plan, they should rise steadily in share price and give me a good profit in future.
Lastly, with the spare cash, I sold an AMD PUT contract and collect an 11% premium over 30 days. The latest AMD PUT contract that I sold, together with Apple and Facebook PUT contracts that I sold previously, will increase my budget set aside for the wheel strategy and allow me to earn a reliable source of monthly income by selling cash-secured PUTS and covered CALLS.
To conclude, the LEAPS strategy allows me to earn magnified returns over the coming months or years as share prices rise while the wheel strategy allows me to earn a reliable and consistent monthly side income that may eventually reach financial freedom earlier.