The US stock market rallied for the 4th day in a row to continue the Santa Claus rally, going into 2022. While some stocks like AMD, Nvidia and Facebook have yet to reach their all-time high, I have resisted adding more LEAPS positions in these counters. After spending more than USD100k buying the dip in December, I will now wait for my LEAPS positions to turn green and then sell some of them when the Santa Claus rally ends.
What I Am I Trading Now
As I believe the stock market is going to stay sideways mostly in 2022, I am switching more funds to do the Wheel strategy. I close my PUT contract on 27 Dec for AMD and open a new contract with a new expiration date. The reason for doing so is because the share price has already exceeded my strike price and I would have gained more than 75% of my premium if I were to buy the contract back now. The contract still has more than 1 week to go but closing it now will free up my capital as well as my obligation to buy 100 shares of AMD if the share price suddenly plunges and close under $145 next Friday. There are other reasons to close a contract early and I have shared them here.
The details are as follow:
Opening the first PUT Contract
Type of Option: Cash Secured PUT
Strike Price: $145
Sold when AMD was at $142 (OTM PUT)
Date of Expiration: 7 Jan 22 (31 days contract)
Premium Collected: $1000 (6.9% returns)
Closing the Contract
Bought when AMD was at $152
Premium Paid: $248
Profit: $1000 – $248 = $752
Nett Returns: 752/ 14,500 = 5.19%
Total Duration of Contract: 20 days
Opening the second PUT Contract
Type of Option: Cash Secured PUT
Strike Price: $152.5
Sold when AMD was at $152.5 (ATM PUT)
Date of Expiration: 28 Jan 22 (32 days contract)
Premium Collected: $1,011 (6.63% returns)
Selling an ATM PUT for 30 days and getting 6.63% is an attractive return as the IV of AMD on 28 Jan 22 is high at 54.5%, because the earning season is coming up in Jan 2022. It means that if AMD stays just above $152.5, the contract will expire worthless and I free up my capital to buy other stuff.
In total, I have collected $1,011 + $752 = $1,763 in 52 days, using a capital of $15,250, which translate to 11.5% returns over 52 days or an average of 6.66% over 30 days. If AMD’s share price continues to rise, I may close it earlier and open another PUT contract to lock in my gains and leverage on the uptrend to keep selling more PUT contracts, just like what I did for Tesla PUT contract in this example.
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The LEAPS Strategy has helped me make more than USD120,000 in 2021. Here’s all you need to know about this strategy that can help you increase your wealth exponentially:
The Ultimate LEAPS Options Thread
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MY TRADES
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I concluded my first year of options trading with more than USD160k of gain, see how I do it and the capital I use for every month to give you a sensing of the percentage yield I get out of my gains:
1st Year Options Trading Recap: The Journey Towards SGD$217,509 Profits In 2021
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