It was a good week for the US stock market as the major indexes rallied at the start of the second half of this trading year. Nasdaq was the best performer as it rose above 5% in the last 5 days.
As the market turned bullish in this week, I changed my strategy to adjust to market trend.
Closed Some Covered CALL Positions
I closed some of the covered CALL positions that I sold previously, and they include Nvidia (3 contracts), AMD and Pinterest. As selling covered call is a bearish bet, which means premium increases with share prices, it makes sense to close these contracts while there are still profits and sell again when the trend turns bearish.
The simple explanation of how this concept works is as follow:
I sell a covered CALL contract against my own shares (100 units) and received X dollars. As share price drops, the premium drops, so the drop in premium becomes my profit if I decide to close the contract early before expiration.
However, if the share price rises, the premium increases, then the new premium becomes higher than the premium that I received when I first sold the covered CALL contract. Thus, if I should close early, I will make a loss.
My intent of closing the covered CALL contracts while there is still profits is to avoid getting into this situation where my premium gain becomes loss.
Closed My LEAPS PUT Positions (Plan B)
I have a feeling that the market may have reached somewhere near its bottom and the next few months will play out the effects of the increased interest rate hikes and the fears of recession, which would bring inflation down. The commodity prices have also continued to fall in July 2022, which may indicate that inflation will soon start to come down.
When inflation is confirmed to have peaked and going down in the coming months, the market will rally. Thus, I decided to exit Plan B (buying LEAPS PUT contracts to hedge against a further market crash) and come back on another day, depending on the market trend back then.
I made a small profits on my Meta LEAPS PUT contracts but had a loss on my Alphabet and Alibaba LEAPS PUT contracts as the share prices continue to rise. Overall, exiting (selling away) the entire LEAPS PUT portfolio resulted in around USD1k loss.
Bought New Meta, Alphabet & Tesla LEAPS CALL Contracts
During this week, I also bought more LEAPS CALL contracts in Meta, Alphabet and Tesla, the top 3 biggest holdings in my LEAPS CALL Portfolio.
As what I have shared in Plan A and Plan C of saving my 453k LEAPS CALL portfolio, I bought some more LEAPS CALL/ CALL contracts to average down on the premium I paid for previous contracts, in hope that I can reach breakeven point faster or incur a lower loss if the market rallies. This of course comes with its risk as I may lose more premium if my hunch is wrong and there is no market rally in the forseeable future.
Concluding Thoughts
As the market rallies, my unrealised loss has dropped from 648k to 608k, and I certainly hope the rally can continue for the long time. However, it would be naive to think that it will continue to rally given that the macro environment still remains very unstable and uncertain. The earning season that is upcoming will add more volatility to the market as earning performances can swing the market from one end to another. Thus, do your research and understand your risk appetite, whether you ae an investor or trader. I wish you all the best!
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I Cut $135,715 Worth Of Losses In The Last 1.5 Months
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