I’ve been holding 2000 shares of Advanced Micro Devices (AMD) since 6/26/17. I bought the stock at $14.39. If you look at my Trade History 2017 you’ll see since I bought the stock I sold a few Calls and brought in about $1400 in premiums. However, I was never assigned. At the beginning of August I still owned the stock but the stock has been going down the entire month. I wasn’t selling Calls because I couldn’t get a decent premium. The last few days the stock started making a move so I decided to make a move.
As you know my trade volume has been down because of my busy summer schedule. With no relief in my schedule in the near future, I decided to look at some longer term options. With my busy schedule I won’t have to monitor a longer term trade on a minute by minute or hour by hour basis.
These longer term options are called LEAPS (Long-term Equity Anticipation Securities). These options have an expiration date once a year which is the 3rd Friday of January. I’ll be writing more about LEAPS and I’ll be adding a new section in Main Street beats Wall Street. LEAPS are a great investment strategy for people who don’t have the time to monitor the market all day, every day.
A true LEAPS or LEAP has an expiration date of one year or more into the future. The trade I made today will expire 1/19/18, which is only 141 days away, but it has the LEAPS expiration date of the 3rd week in January. Let’s take a look at my LEAP.
Sell to Open 20 AMD 1/19/18 $15 C @ $1.20 (+$2400)
As you see a LEAP has a much higher premium because of the Time Value.
This trade gets a Risk Factor 1. This is a LEAP Covered Call on previously owned stock.
Even though I bought the stock back on 6/26/17 at $14.39, today the stock is at $13.40. With the Strike Price at $15, if I get assigned I’ll make 61¢ on the stock and keep the $1.20 premium. That would be a total of $1.81 with assignment. That will be a 12.5% return on my investment on the stock. This can be a nice return that will expire in about 4 and a half months.
Watch for my page on LEAPS. This can be a great strategy for traders who want to stay involved but don’t have all the time in the world to put in.
Also watch for my Week Ending Results. A few days ago I got out of my long running Roll-out with RH. I didn’t get time to post that trade but I’m glad to be out with a little profit. Plus I freed up some margin.
Steve
The Options Coach