Nvidia announced a 10-for-1 stock split after its earnings release on 22 May and I think this event will help me in my current Nvidia naked CALL situation.
Background
I sold 3 Nvidia Covered CALL on my 300 Nvidia shares when Nvidia was at its bottom back in 2023, trading slightly over USD 100. When the share price started to rise, I was sitting on huge unrealised profits on my shares but could not realise them because I was trapped by the options contracts.
I then decided to cash out on the profits and sold off 200 shares when Nvidia was trading at around USD 400 plus range (turning my 2 Covered CALL contracts into Naked CALL contracts), hoping to close the 2 options contracts in the future when they dipped in value over time.
Nvidia Catch-22: How I Attempt To Unwrong A Failed Covered CALL Trade
The opportunity to close the options contracts did not come as Nvidia continued to beat expectations quarter after quarter and the share price kept rising, eventually eating up liquidity and increased my risk of getting liquidated.
I found a way to get out of the liquidity crisis by turning one naked CALL into a SELL PUT contract and buying the dip on Nvidia shares whenever I could. Thus, instead of being short 200 shares, I was only short of 100 shares. After a few rounds of shares buying, I had accumulated 24 more shares and was currently short of 76 Nvidia shares.
Why Stock Split Is Good?
I was unable to use the above method to turn my other naked SELL CALL position into a SELL PUT position as that would require excessive liquidity, which I could not afford due to the low liquidity in my margins account. I could not do a partial convert as the minimum lot size for an options contract is 100 shares.
With the stock split, I would be short of 760 shares for my naked CALL positions and that would allow me to use the above method to convert some of the shortfall in shares into an options contract (SELL PUT) so that I would no longer be selling naked CALL.
This means that after the stock split, I could convert up to 7 naked CALL contracts into SELL PUT contracts. The amount of contracts that I would eventually convert depends on the amount of liquidity required to do the conversion as well as the liquidity I have left in my account. Instead of having to convert 1000 shares at once (projection based on the current situation), the 10-for-1 stock split allows me to execute the conversion in smaller parts (100 shares at once) with less liquidity at stake.
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thanks for the sharing. Do you mind sharing the detail on how you
convert your naked CALL into a SELL PUT contract ? Thanks
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Hi DF, the details are in this post:
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