AMD “Triple Play Hedge”

Earlier today I placed 3 separate orders to sell (3) different 10 contract Calls. All of these Calls were with Advanced Micro Devices (AMD) to form a position I call a “Triple Play Hedge.” I was filled on all of my orders while I was not home. I was actually driving my car and I heard an email come in on one of me mobile devices. I pulled over to write a post explaining this and I said I would write the post explaining the trade when I get to my destination. Well, I’m settled in and ready to explain this trade.

If you are not familiar with my “Triple Play Hedge” please read the page now to better understand why I make a trade like this.

I previously owned 1000 shares of AMD at $32. I’ve been waiting a few days for the stock to get a little higher to get desired premiums to do my “Triple Play Hedge” strategy. Today when the stock hit the $31.40 area I was filled on (3) 10 contract “Sell to Open” orders I placed. Of course these were Call Options!

The 1st Call was a 10 contract 7/12/19 $32.50 Call. I received a premium of 35¢ for $350. Since I own 1000 shares of the stock this is a Covered Call. This premium is about a 1.1% gain for the 1 week option. This fits into my “1 Week/1%” strategy. This Call will expire next Friday.

The 2nd Call was a 10 contract 7/19/19 $33.00 Call. I went out 1 more week on the Expiration Date, and up 50¢ on the Strike Price. I received a premium of 50¢ for $500. I own 1000 shares of AMD but they are covering the 1st Call so this 2nd Call is a Naked Call.

If my shares are not assigned on the 1st Call, that Call will expire and the 2nd Call will become Covered. If the stock goes up above the Strike Price of the 1st Call, I will be assigned. I’ll keep the $350 premium and make 50¢ on the stock for $500. I will than buy another 1000 shares to cover the 2nd Call.

The 3rd Call was a 10 contract 7/26/19 $33.50 Call. Again, for protection, I went out another week on the Expiration Date, and up another 50¢ on the Strike Price. For this option I received a premium of 90¢ for $900. This Call will also be a Naked Call. Below are the 3 filled orders.

AMD Triple Play Hedge

Previously owned 1000 Shares of AMD @ $32

Sell to Open 10 AMD 7/12/19 $32.50 C @ 35¢ (+$350) Covered Call

Sell to Open 10 AMD 7/19/19 $33.00 C @ 50¢ (+$500) Naked Call

Sell to Open 10 AMD 7/26/19 $33.50 C @ 90¢ (+$900) Naked Call

I brought in a total of $1750 in premiums. If the stock goes down I have $1750 of insurance. This is a hedge! And I’m getting paid the insurance money, not paying for the insurance!

This position will end in 3 weeks. If it ends the way I think it will I’ll keep the premiums and end up selling the stock on one of the Calls for some gain on the stock sale. The $1750 premium alone is a 5.4% Rate of Return in 3 weeks. I’ll take it! Please read my page on Rate of Return.

We are in the options game. There is always a little risk. Sometimes a lot of risk. I believe this is a low risk play. However, I will give it a Risk Factor 3 because there are Naked Calls involved.

As time goes by many things can happen. I will watch this position closely and make any adjustment trades that are necessary. Please watch closely with me. And please read my pages highlighted above. I cannot explain everything involved but if you read the pages you will better understand.

If you have any questions involving this position and my “Triple Play Hedge,” and the reason behind it, please email me.

Enjoy a great 4th of July weekend. We live in a great country and have a lot to be thankful for.

Steve

The Options Coach