TRADE IDEA: AMD COVERED CALL/NAKED SHORT PUT
Updated
My "guess" is that AMD will not hold onto this level (I briefly considered going "monied" with the short call with the covered call setup, selling the 7 strike instead of the 8). However. implied volatility is fairly high here (64.6%), and my mechanical approach to most of these setups is basically to "ditch the guessing" and pull the trigger; price will go where it goes ... .
Covered Call Metrics:
Buy 100 Shares at 7.51
Sell Oct 21st 8 Call
Whole Package: 6.93 db (off hours; 6.93 will be my cost basis in the stock)
Max Profit: $107 (if called away at 8)
ROC%: 15.4%
Notes: As an alternative, I looked at selling a put in the Oct 21st expiry below current price. The Oct 21st 7 short put, for example, currently offers up .54 ($54) in premium at the mid. The notion there would either be to (a) keep the premium if AMD finishes above $7 at expiry; (b) look to be put the stock at $7 if it doesn't; or (c) roll the short put down and out for additional credit if price breaks $7. Anything below the $7 strike in the Oct 21st expiry won't offer you much premium at the moment (e.g., the 6 strike offers .25 at the mid, which approaches "not worth it"). At NY open, I'll probably just "flip a coin" as to whether I go with the naked put or the covered call.
Covered Call Metrics:
Buy 100 Shares at 7.51
Sell Oct 21st 8 Call
Whole Package: 6.93 db (off hours; 6.93 will be my cost basis in the stock)
Max Profit: $107 (if called away at 8)
ROC%: 15.4%
Notes: As an alternative, I looked at selling a put in the Oct 21st expiry below current price. The Oct 21st 7 short put, for example, currently offers up .54 ($54) in premium at the mid. The notion there would either be to (a) keep the premium if AMD finishes above $7 at expiry; (b) look to be put the stock at $7 if it doesn't; or (c) roll the short put down and out for additional credit if price breaks $7. Anything below the $7 strike in the Oct 21st expiry won't offer you much premium at the moment (e.g., the 6 strike offers .25 at the mid, which approaches "not worth it"). At NY open, I'll probably just "flip a coin" as to whether I go with the naked put or the covered call.
Note
Went covered call, which I got filled for 7.00. So max profit (assuming a call away at $8) is $100 (14.3% ROC).Note
Proceeded to drop a bit post-fill. I assume that if I went "monied" with the short call, price would've immediately popped ... .Note
Yikes. Apparently investors didn't like the stock offering idea very much. My cost basis is at 7.00/share. I will wait until the 8 call approaches worthless (.05), close it out, and then proceed to sell 7 calls against to reduce my cost basis further.Note
With the short call sticking around .07-.08 for days (near, but not quite worthless), I rolled it down and out to the Nov 18th 7 short call for an additional .37 ($37)/contract credit, locking in the profit experienced by the short call's reduction in value and further reducing my cost basis in my shares.Trade closed manually
Covering here for a small profit ($15 per 100 shares/contract) on this pop. Freeing up buying power.Note
Here's the whole chain: 9/6: Bought shares at 7.61 and sold the Oct 21st 8 call as a package for a $700 debit. 9/30: Rolled the Oct 21st 8 calls down to the Nov 18th 7 calls for a $37 credit. 10/26: Closing for a $681 credit. Total credits received ($681+$37) - total debits paid ($700) - minus fees = $15 in profit. Here, price actually declined from where I bought shares, and I still didn't lose money. While I could have hung on until Nov 18th expiry (the setup was in-the-money), I wanted to free up buying power for my more traditional go-to setups in broad market/sector ETF's.
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