The US stock market has been on a fantastic rally since the FOMC meeting on 16 March 22. I am thankful to have made a better than expected return of USD19.3k profits in options trading for the month of March due to the rally. Because of the surge in Tesla’s share price, I was able to turn from a huge loss on the CALL contracts to USD8k profits on my 40 Tesla CALL contracts.
However, all good things will eventually come to an end. With so many uncertainties still left in the market, such as the Federal Reserves raising interest rates to fight inflation, balance sheet reduction, the repercussion of the Ukraine war, and sanctions against Russia, I think it is unrealistic to expect that 2022 will be another booming year for the stock market.
I have held back on selling covered call contracts since the rally started, except for Nvidia and Tesla, where I am comfortable selling them at the strike price and there is no loss for me even if the contracts are exercised.
On 5th April 22, I decided to initiate (sell) new covered call positions in my other stocks, AMD, Nio and Palantir, to prepare for the end of the rally. The details of my trades are as follow:
For Palantir and AMD, the strike price is quite close to my breakeven price so even if the contracts get exercised, the loss would not be great. As they are OTM CALL options, the premiums/ returns are lower as compared to ATM or ITM CALL options. For Nio, I am giving myself an extra buffer till month end with a delta of 0.118, which means the probability of the contract being exercised is 11.8%.
If the rally were to continue in April, then I have some room between the current share price to the strike price, before the contracts are exercised. Even if the contracts are exercised as I feel that it is not worth the extra premium (and incurring loss) to buy them back, the loss is not great as the strike price is close to my breakeven price (for the case of AMD and Palantir).
However, if the rally were to stop or the share prices stay sideways until the expiration date, then I will profit from these covered call positions by collecting full premium when the contracts expire worthless or rolling the covered call contracts as the share prices keep dropping. I have explained further in this post:
Why I Choose To Roll My CALL Option Contract When Share Price Falls
Concluding Thoughts
No one can predict where the market can go next or how it will be manipulated by the market makers/ institutional investors. April is going to be a volatile month with the earnings results and future guidance given by the respective companies. What we can do is always be prepared for the possible outcome that is different from the current one, i.e. in a rally, prepare for a correction, and vice versa.
I personally hope that the rally can last so that I can break even or make a profit off my LEAPS CALL positions and then use the capital that is freed up to trade a lower-risk options strategy, which is the Wheel Strategy:
My Trading Strategies For 2022 | How Will I Trade For Monthly Income?
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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:
MY TRADES
If the bear market in 2022 is making feel depressed as your stocks come tumbling down, read this article to find out how you can use options trading to help you claw back some of your losses as you await market recovery:
How I Do Earn Even When The Stock Market Is Bearish?
Also, check out my trading strategies in different market conditions, whether it is bullish, bearish or volatile:
How Not To Lose Money In Trading? | My Trading Strategies For Bullish, Bearish And Volatile Market
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
Want to learn more about Technical Analysis (TA) but find it difficult to grasp the concepts? This article brings you TA at a glance, and helps you understand key terminologies, indicators, and techniques used in TA to equip you with the knowledge that can empower you in your investing/ trading journey.
The Newbie Guide To Technical Analysis (TA)
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)
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Learning Investment With Jason Cai 