Over the past week, I have been loading up Nvidia and AMD LEAPS CALL options, 6 to be exact, 3 AMD and 3 Nvidia LEAPS, all expiring in Jan 2024, more than 2 years later.
These 2 semiconductors stocks are my strong conviction stocks and I believe there is still plenty of room for their share price to go higher over the next 2 years because there are so many applications and addressable markets out there that require chips, whether it is Central Processing Units (CPU) or Graphic Processing Chips (GPU), designed and produced by AMD or Nvidia, to be used in Artificial Intelligence (AI), crypto-mining, gaming, autonomous vehicles, data centers and finally, metaverse. I believe these 2 companies are going to report continual good earnings results, quarter after quarter, and continue to justify their price increase. In a world ruled by the technological revolution, the demand for smart chips will continue to be strong in the years ahead.
Managing Risk of LEAPS
The risk of buying shares or options at an all-time high price is that the price may retrace due to correction or negative sentiments in the stock market. However, I have managed this risk by buying LEAPS that are more than 2 years out. Should there be any correction, I will take the opportunity to average down on premiums paid for these LEAPS. By buying the newer LEAPS contracts that have a long way to go before the options contract expires, I can start to take profit on existing LEAPS that are expiring first in line when there is a reverse in the uptrend. This frees up capital to buy more LEAPS that are further out, to capitalize on long-term (magnified) gains.