My biggest mistake in 2021/2022 was to build up a LEAPS portfolio amounting to more than 400k and to lose all of them in 2022 bear market. My biggest mistake in 2022/2023 was to sell Covered CALL on my existing shares such as Nvidia, Palantir, Tesla at very low strike price so that I can earn a decent premium. It is like picking up pennies in front of a steamroller.
The worst happened when all these stocks bottomed in early 2023 and the premium started exploding over the next few months. I did not cut loss on those broken SELL CALL positions and instead allowed the unrealised losses to keep snowballing. Fast forward a year plus, both Nvidia and Palantir have 10x from its previous share price in Jan 2023.
Failed Trade In Palantir SELL CALL
I initially had 14 SELL CALL contracts with SP at only USD8 (expiring in Jan 26), but I managed to repair 9 out of 14 of them by converting them from SELL CALL to SELL PUT (without losing any premium). I leave 5 contracts untouched as I thought they could be the hedges against Palantir’s share price reversal to the downside. The 9 SELL PUT contracts are doing very well and close to break even price already, i.e. no loss on those contracts (premium paid to close now equals the premium received when opening up the initial SELL CALL contracts).
Read more about my previously shared repair strategy on broken SELL CALL:
I Found A Way To Fix My Broken Covered CALL & Naked CALL Positions, While Releasing Stuck Shares, Unrealised Profits, Without Hurting Liquidity
Why Not Use The Same Strategy?
The above strategy does not work anymore as Palantir’s share price jumped too much over the last few months and I was unable to find the SELL PUT contracts that pays me the premium that I need to close my SELL CALL contracts. Furthermore, unlike Nvidia’s SELL CALL contracts whereby the strike price is nearer my breakeven price, the strike price that I had for Palantir is too low at USD8.
Rolling the contract to a later expiration date (say Jan 27) and use the difference in time value to sell at a higher strike price also doesn’t work as there no SP near USD8 expiring in Jan 27. The lowest SP is actually USD20. Selling CALL at USD20 does not provide me with enough premium to close the SELL CALL contracts from Jan 26 (SP USD8).
What Happens Upon Expiration?
On Jan 2026, if Palantir closes above USD8, I will have to sell 500 shares at this share price. As my breakeven of my 500 Palantir shares is around USD37, which means I would have realised a loss of USD14,5k ((37-8) x 500). This loss is fixed as long as Palantir closes above USD8, be it USD9 or USD9000.
How Do I Repair the Trade Now?
As it seems impossible to avoid this loss unless Palantir crashes back to below USD10 or closes below USD8 upon expiration (Jan 26), I repair this trade by opening new positions in Palantir through options and shares. Initially, I wanted to repair the trade by converting my SELL CALL into SELL PUT contracts (at higher SP) and incur some losses to make it happen.
However, due to the 22% jump in share price after its recent earnings, my realised losses turned from a mere 2k+ to almost 10k of losses (just to convert USD8 SELL CALL, expiration Jan 26 to USD65 SELL PUT, expiration Jan 27). Thus, it is not attractive to execute this repair trade that uses the (SELL CALL to SELL PUT) strategy.
Therefore, I chose to buy 3 CALL options contracts and 100 shares, in hope that I can still capture the gains from now till Jan 26.
Trade details on my Patreon page:
[5 Nov 24] Bought Palantir Shares & CALL Contracts
My max loss in the broken SELL CALL contracts is fixed at USD14.5k. If Palantir’s share price continues to go up in the months or years to come, then the gains from my options contracts and shares may be huge enough to cover the USD14.5k, allowing me to break even on these broken SELL CALL positions.
Concluding Thoughts
The selling Covered CALL strategy is a good means to earn some premium but it is a bad idea to sell at strike price way below our breakeven price. When the share price suddenly rebounded, we are stuck forever or have to lose our shares at the very low strike prices agreed for the options contracts.
The higher the share price goes, the more premium we need to pay back close the contracts. When the share price of a particular company plunges, it is not worth the risk to sell Covered CALL to earn that premium because that puts us in a risky situation, should the share price rebounds suddenly and violently.
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