The US market dropped for the 4th day in a roll for the first trading week of the new year. Tesla continued to fall, so did the big tech and the chip companies. I have been buying the dip since late Nov 21 and I am now almost depleted with my capital. I sold my Disney ITM LEAPS call at a 45% loss just a day ago to raise funds to buy Tesla Sept ’22 LEAPS CALL at $21.
So, for 7 Jan 22, I managed to raise some funds by selling covered calls on my existing stocks that are part of my Wheel strategy. The Wheel strategy allows me to earn some returns in a bearish market while waiting for the market to recover from this round of correction. As I have closed all my covered call positions on 6th Jan, I was able to open another round of covered call contracts for the following week ending 14th Jan.
|Name of Stock||Strike Price (USD)||Premium Collected (USD)||Returns (%)|
|Palantir||17||14 x 41 = $574||1.9|
From the above contracts, I managed to collect a total of $744 premium. With the remaining funds from the sale of Disney LEAPS a day ago, I managed to buy the following:
1. Tesla LEAPS, Expiry on Sept 22, Strike Price $2,475 and premium of $1,800
2. 10 x Bank of America (BAC) LEAPS, Expiry on Jan 23, Strike Price of $70, paid a total premium of $68 x 10 = $680.
The reason for buying Tesla LEAPS is because I still strongly believe the share price will rebound when the earnings results are announced and that the current dip is a good opportunity for me to buy the dip. If I am wrong and Tesla’s share price continues to fall, then I have 9 months to average down my LEAPS and wait for recovery before all my 6 LEAPS contracts expire worthless.
There are a few reasons for buying Bank of America (BAC) LEAPS CALL. The first reason being when the interest rates are raised in 2022, the banks will stand to benefit as they can charge clients more interest. The second reason is that my current covered call contract on BAC that is expiring next Friday, 14th Jan 22, may most likely get called away as the strike price is only $45, compared to yesterday’s closing price of $49.24. Thus, the LEAPS contracts will ensure I still have a small portion of my funds allocated to financial stocks as a means to diversify.
The last reason may surprise you. Based on my LEAPS Growth Formula, the current premium is extremely cheap and can get me a potential 8x the percentage returns on my invested capital relative to the percentage share price gain.
LEAPS Growth Formula = (0.112 x 49.2)/ 0.68 = 8.1
This means that if BAC’s share price increases by 10% in share price over the next 12 months, the LEAPS premium can increase by 80%, assuming IV stays constant.
Keen to learn about options trading but do not wish to pay for expensive courses, this newbie guide will help gain the knowledge and fundamentals to understand options better. And it’s totally free!
The Newbie’s Guide To Options Trading
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
Looking for ideas on what stocks to invest in or which stocks to trade? You can take reference from what I have been buying or selling. I try to update them as soon as I can in this section, as well as share my thoughts behind executing these trades:
Excited to start your trading journey or perhaps try out with a paper trading account to build your confidence in trading? Check out this step-by-step to help you get started:
How To Buy Options on Interactive Brokers (Step-By-Step)
I watched tons of videos on YouTube since 2020 and if you are wondering if there are any useful channels that you can subscribe to for learning market trends, TA, FA, check out this compilation here:
My Secret Weapons For Options Trading: I Watch These YouTube Financial Channels Every Day
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
This blog is as authentic and as transparent as I can share, I do not just show the wins and hide the loss. I have made some very bad decisions in the first 8 years of investing and paid a huge price for them. Here is the loss I have accumulated during these years. I hope you learn some lessons from my mistakes.
I Cut $135,715 Worth Of Losses In The Last 1.5 Months
2 thoughts on “[7 Jan 22 Trades] Buying A LEAPS Contract That Can 8x My % Returns”
BAC has earnings on Jan 19. This should give a boost to your position.
Thanks Wayne for this info! Hope BAC can rally higher after earnings 🙂