The US stock market continued to fall on 20th May 22 before staging a late comeback to close mixed. One of the stock that got hammered on Friday’s session was Tesla. It was at one stage down more than USD70 before rising to close at a day loss of USD45.52.
For Tesla stock, I have prepared my portfolio for the volatile stock going both direction. If the stock is rising, my sell PUT position will benefit and if the stock is falling, my sell CALL position will benefit. If Tesla shoot to the moon, then my LEAPS positions will bring great returns.
On 19th May, I sold a Tesla CALL option contract and received USD9.3k. It was a 7.75% returns for a 484-day contract. However, due to drop in share price for Tesla on 20th May, the premium fell by USD1,700 when Tesla’s share price was down USD50. So, I closed the contract and locked in USD1.7k profits. That was a 1.42% return in a day as compared to 7.75% return for 484 days.
That is the advantage of having a higher delta due to the longer dated CALL. There is also upside protection in case the trend reverse. In the “worst case”, I will get 7.75% return over 484 days and sell my Tesla shares at USD1.2k, which is still above my breakeven price of USD854.
Read more about this method that can maximise your returns from selling covered CALL, especially in a bearish market:
I Discovered A Way To Generate Higher Returns From Selling Covered CALL For Low IV Stocks Like Apple
For folks who are thinking about what’s the point of earning these premiums when the stocks are falling in share price, this article may be a useful read:
Q&A: Your Covered CALL Contracts Are Generating Good Returns But Your Shares Are Losing Money!
Holding Cash
I have not been buying any options other than those contracts that are bought for the purpose of rolling my covered CALL. I have not been buying any shares either. Basically, I am conserving my cash and increasing my cash reserves that are coming in from the returns I made from options trading and the salary from my day job.
While I am not using leverage (margins), most of my savings is inside my trading account, which will cause liquidity problem if they are all stuck when the market keeps dropping.
The market looks really bad and every time analysts / financial YouTubers have predicted the bottoming of the market is about to happen, it seems to fall even lower, breaking all support lines. I believe the pain will continue for months to come until data shows that inflation has dropped significantly.
Preparing For Future Losses
That brings me back to the next point of preparing for pain in the coming months. I have some LEAPS CALL contracts that are most likely going to expire worthless in the coming months. Even if there is an unexpected rally, it can only serve to lower my losses and not totally overcome them. The risk of buying LEAPS is that the clock is ticking when things are not going in your favour.
The first imminent loss would be my CALL contracts bought for Nio, as they are expiring in less than a month (17 June 2022). The loss on these contracts would be SGD3,245 (USD2,404).
The 2nd cluster of CALL contracts was bought for Facebook (Meta), which would be expiring on 16 Sept 22. The total loss would be SGD9,874 (USD7,314). While the loss for this cluster of contracts is 3 times higher than the Nio CALL contracts, there is more time before they expire worthless. If CPI data can gradually decrease over the next few months, there may be a chance for the market to rebound and something can be salvaged for these contracts.
Concluding Thoughts
I hope the sharing in this blog can be useful to you in some ways, be it to encourage you not to give up after enduring almost 6 months of pain or to help you earn some sideline income to build your capital or cash reserves. Hang in there, guys, this too shall pass!
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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 on 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 