The market rebounded as fears over the disruption caused by the Omnicron variant started to diminish. Most stocks were in the green as investors entered the market to buy the dip.
As I have already bought 20 LEAPS contracts on my high conviction stocks over the last 2 red trading days, I only added one AMD LEAPS and one Nvidia LEAPS last night (7 Dec 21).
These 2 stocks have fallen off their peak prices and when optimism resumes back in the market, I believe they will create new highs again. The reason being these 2 companies have so much growth potential in the years ahead, as demand for computing resources surges in the commercial, gaming, artificial intelligence, autonomous driving and crypto mining sectors. Buying these LEAPS at the maximum possible expiration date (Jan 2024) allows me enough leeway to weather any correction and take profits when the share price eventually rises.
Why Sell A PUT Now?
If times are going to be bullish, why not focus on LEAPS instead of selling a PUT where returns are capped at the premium received? I sold an ITM AMD PUT at a strike price of $145, expiring on 7 Jan 22 and collected a premium of $1,000 (6.9%). IV was high for AMD and I earn a good premium by selling an option contract.
Another key reason for selling a PUT is to hedge against uncertain times come 2022. If there are going to be negative catalysts for the stock market such as tapering or interest rate hike happening, holding LEAPS will not be beneficial as we will be stuck if share prices do not move up anymore. On the other hand, if the PUT contract is exercised, I will be the proud owner of 100 units of underlying shares and thus able to sell covered calls against them to earn some profits while waiting for the share price to recover. I can also choose to sell the shares away to generate capital if there are better investments by then. Thus, it also acts as my capital reserves, allowing me to tap into it in the event there is another correction coming up in 2022.
Learning Investment With Jason Cai 