AMD shares are cracking support today and Team Phoenix has a practice bull put spread moving in the money. In today’s video, I share the various options for trade management and which one I’m using for the lab.
Bull Put Spreads
3/23/2022: AMD @ $118
Sell April $100/$95 bull put spread for 53 cents. Max Loss $4.47
1) Exit at the short strike.
A) Entered for 53 cents. Exited for $2.00. Lost $1.47 (3 winners)
2) If I’m willing to risk more in hopes that we bounce back before expiration, I might let the spread go ITM.
A) What if the put spread is ITM at expiration?
i) Eat the max loss and be done.
ii) Allow assignment, and sell the 95 put if it’s ITM at expiration. Then you’re long stock. Sell cov call with enough time value to recoup my loss.
Long 100 shares of stock @ $99.47.
Sell a covered call so that I get out of the stock in May at $99.47 or above.
A) Sell OTM cov call. Short May $100 call for $6.70. New cost basis: $99.47 – $6.70 = $92.77
B) Sell ITM cov call. Short May $80 call for $19.85. New cost basis: $99.47 – $19.85 = $79.62
I must sell my stock at $80 come May expiration. BUT even though I bought stock at $100, I received 53 cents from the bull put and $19.85 from the short call, thus reducing my basis $79.62. Even if I get assigned at $80, I will still make 38 cents!
Choice A: Close the bull put spread now and lose $1.47.
Choice B: Wait until Thursday, hopefully we bounce and I get out at a small loss or even.
Choice C: I don’t get out before Thursday and I convert into long stock at $99.47. Then I sell a May $80 covered call to get nearly $20 of protection and reduce my basis to just under $80. Then as long as we’re above $80 at May expiration, I made back all my loss.
One: I lost money in April ($147), my objective is to simply make back that $147 in May.
Two: Naked put is a synthetic covered call.
A) May $80 cov call
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