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Hey Sam,
I’ve noticed you have been selling covered calls one contract at a time in your Baratheon portfolio because you’ve been buying single contracts. If you had multiple open call contracts would you be more granular when selling (and buying them back) covered calls against them? (ex: half and half, quarter of the contracts at a time)
Given the current bullish price action what would you do in the case where you still had covered call contracts against long positions (April expiry) you’d like to keep? Would it be best to just take the loss now or wait until the next segment cycle pull back?
Yes. There’d be more flexibility in the way we approach selling covered calls. It’s always better to do things in parts.
But in terms of closing out covered calls, we very rarely close them out when they’re negative. Like what we did yesterday with Nvidia — we were only down a small amount on them — we normally wouldn’t do. Normally, if we’ve converted to a spread, then we’ll trade the spread at that point.
But suppose we had 3 Nvidia contracts to begin with, we might have sold 1 covered call or reduced our position by 1 covered call.
For the position we’ve sold covered calls against – like Apple for example — we’d just hold them. We’re fine with Apple being a $220 – $240 spread. That’s still a $20 max value on the spread on top of the profits we’ve already made on it.
But generally speaking, we try not to take losses on calls we sell against a position as it drastically increases the overall cost in the position and hence the risk. Whereas if it just keeps climbing, the worst that happens is we make less profits — but we’re still profitable right.
For example, if we buy an option for $15.00 and we sell covered calls against it for $9.00. If we then later close that call at $11, our cost allocation to the entire trade is now $17.and that’s a jump from only $4.00 (previous as a spread) up to $17 now. Essentially, you’re increasing risk exposure in that scenario by a full $13. Whereas if we leave it covered, there’s no real downside beyond the reduction in profitability. But that is built into the $4.00 cost of the spread.
Hi Sam,
Given most of our option positions expire in April what would be the game plan to exit these positions? I wager we want to exit them in March before theta decay really starts ramping up. Would love to hear your thoughts on an exit plan for the current call / call spreads and general thoughts about parameters for exiting positions (theta decay being an example)!
Probably closer to the end of February. For call-spreads, we may holder them longer depending how things go. Especially in Targaryen. In targaryen, we have small positions that pay off big if they close in the money.
For example, the Nvidia $140-$145 call-spread which we own at an effective cost of like $0.98 goes to $5.00 at expiration. The overall cost is right around $686 but that could end up climbing and closing at $3500.00.
What are your thoughts on holding our calls / call-spreads through NVDA earnings? Or is that too risky given the time sensitivity of our options?
So we may very well hold the Targaryen Spread through earrings as we have a low cost-basis and the upside is significant. If that spread ends up panning out — and I actually it’s time just right to close in the money — we end up making $2800 on it. It gets us to our target of $10k by the 6-month mark.
We’re at $7,500 right now. We need another $2,500 to reach $10k by 6-moths. Then we’ll have another 6mo to get to $20k.
Basically, by next November, we need to be at $20k to be on-time.
NVDA getting very close to key resistance 135-140$ with 70-RSI hourly. Should we hedge some of our position ?
we have a ton of different Nvidia positions across various portfolios. Which ones were you thinking? For short-term portfolios, we generally don’t hedge with puts as the positions sizes don’t really call for it. Longer-term portfolios, we’ll explore hedges again in Nvidia above $140.
Please see 11:11 AM update. We might be getting close to selling our short-term Nvidia positions. We have the April $125’s in baratheon and the $140-$145 call-spread in Targaryen. We might close out both positions soon.
When do you plan to sell some NVDA shares? Do you have any conditions?
Which portfolio are you asking about? So for the long-term portfolios, we’re not selling anything anytime soon. Those portfolios are essentially ultra long-term.
There are conditions where we’d reduce risk through hedging and/or through the sale ofc covered calls. So if we feel like Nvidia has a reached a critical point where the probability of the stock turning substantially lower in the intermediate-term is high, then we’ll sell covered calls. We did this in December for example all in the $140’s.
For example, we sold the Nvidia January $170 calls up there and we sold the NVDL $100 calls. That’s the closest to closing a position we’ll get.
For short-term trading portfolios like Baratheon and Targaryen, they’re traded all the time. We making short-term decisions there.
With the whole market looking up why do you think MSFT is still flat?
So it’s still consolidating. Microsoft trades in a particular pattern where it will spend a good while consolidating in a slight downtrend, explode higher short-term and then consolidate again.
It won’t swim downstream for long if the QQQ breaks out. If the QQQ start to run, everything is going substantially higher. Apple, Nvidia, Microsoft — everything will move way higher.
thank you DC!
Sam there were huge orders today after market close between 4 – 4:05pm. Do you know what these are?
Really good obviously. We have a close above key resistance. Not only that, the QQQ is at its highest level since December. The QQQ not only got through $534, it closed well above it. The previous attempts at resistance peaked at $534 with the QQQ spending very little time at that price point.
So it’s clearly in a strong position right now as is the rest of the market.
(Feb 14, 8:30)
Hi Sam,
May I suggest for your consideration a trade for Baratheon that isn’t a big-cap? RXRX has become somewhat of a meme stock. Yesterday, it broke out of its usual range-bound oscillation to $8.50 and briefly traded at $9.30 premarket today. I believe there’s a good chance it will:
Be subject to the “magnet effect” of trying to break above $10.00,Be picked up by algorithms, andBe amplified by the meme effect (notably on the AfterHours app).All of this is catalyzed by QQQ breaking out.
I see this as a make-or-break situation in the short term: either it crosses $10.00 (toward $11.00) today or in the next week, or it falls back toward $7.00. In my opinion, there’s a greater chance of a significant move up.
I’ve considered different instruments, and I think a simple at-the-money call with a one-week expiration is best (with a small allocation). For example, the RXRX Feb 21 $8.00 (or $8.50) call, aiming to sell it back at $10.50+. By mid-next week, the outcome could be roughly –60% or +220%.
Is this too “bastard” for Baratheon?
P.S. It will open at RSI > 70.
(Follow up from this morning – Friday)
I went ahead and opened RXRX Feb21 8.00 call at 1.24$ x 8c in heavy buying during the first minute at market opening.
Sold half (4c) about 1 hour later at 1.90$ for 53% profit. I am holding over the weekend as the calls are now 2.25 and rising.
(Tuesday at market open)
This is a follow up from last Friday. I sold my remaining RXRX call 8.00 for 3.70$ x4c, so from 1.24$ it’s 198% profit. The stock is still rising but I’ve reached my original goal so I closed, although I could have held to 1 contract.