Samwise Quick Reference Handbook
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Thank you Sam! Can you help me understand if we would buy NVDA calls in a dip before earnings or after? My understanding is the IV would likely drop post earnings so would it make sense to buy before or wait?
It depends on what we’re buying and how oversold. It really just depends on the option and how over/undervalued they are.
The only reason we’d buy ahead of earnings is if Nvidia is deeply oversold and we’d miss our chance to buy if it runs after earrings. But we won’t really know until it trades.
I noticed you guys are talking about RDDT stock more which is great. Will there be talk about stocks like HOOD and PLTR anytime soon? I ask because they are popular right now. And are traded a lot. I would like to see your guy’s technical analysis on it. Lastly, thanks for the great product and info you guys provide. I appreciate it.
Yes for PLTR. I forgot to add PLTR to our list. we need to see it drop under $100 and form a second instance of oversold conditions. Then we might buy it for a trade.
thanks Sam. if QQQ doesn’t drop much or at all today, is that more problematic / less indicative of a bounce coming?
It could have been. It could have indicated further downside. But as you see, that didn’t happen. We got straight oversold
are there any alternatives to the call spreads mentioned in the post? would love to participate to the extent that I can
Are we okay, just increasing our position through common stock?
I have been buying 2x ETF’s instead of all call spreads for now
🙂 Me too! I hope it works out.
For PLTR yes. We almost bought the $90 calls straight up as it has nearly the same result. The problem is it’s very subject to time and volatility. if PLTR trades down or sideways for 2-weeks an then rebounds, the $90 calls perform poorly whereas the spread performs almost exactly the same as it would if it rebound right away. That’s the essentially issue every time this question comes up.
You take on substantially more risk trying to do this with calls over call-spreads. In some cases, it’s okay becuase the calls aren’t overpriced. In this case, PLTR is a high flier and oversold. It’s either going to go really well for calls or call-spreads or poorly if it decides to crash. Hence why we have small positions.
FYI: Typo in the Targaryen QQQ spread purchase. Says Baratheon for both trades.
Trades page also shows x3 for that Targaryen trade, but on this page it shows x2. I got three. Not sure what it’s supposed to be.
Could it be an accident. there should only be two. it may have double copied automatically
The Trade page looks right. There should be 4 trades totally today. basically teh same trade in both portfolios. QQQ and PLTR.
If you look at the quantity of contracts for the Targaryen trades, the Trades page shows x3 and the yellow boxes on here show x2 for both the QQQ and PLTR trades. So I’m assuming it should be x3?
No. The boxes you see here is what is accurate. Targaryen has lower allocations. It could easily be a mistake in the push notification. Probably is as I’m copying pasting a lot of things. Let me go update the trade page manually.
Thanks for clarifying, as well as the blurb, with suggestions, in the daily briefing. I don’t mind having a little extra for now.
Thank you. Yeah I have to get used to that. It’s a new system.
No plan for NVDA as of now? Whats the RSI you’re aiming for
Not yet. It isn’t oversold at all. It’s down near a 30-32 RSI. So it’s close to oversold. But not quite the same as all of the other stocks we’re currently looking at.
Hi Sam, what’s the expiry date for PLTR options?
Sam, the expiration date is missing on the PLTR spreads.
Nice catch. Just going too fast. Generally speaking, we make trades in the same expiration. We’ve now moved on to may 16. Soon we’ll go to June/July.
Edit: all good
Hey Sam,
In schwab there are over a dozen spread options including vertical call, calendar call, diagonal call, ratio call, butterfly call, straddle, condor call, etc.
I have not traded call spreads as of yet because I am not sure which option you are referring to in this news letter.
Any guidance on which your model portfolio uses?
thank you!
I wouldn’t trade spreads until you’ve done 5-10 spread trades with paper money. I’ve traded with a lot of people. Cousins, family members etc. They all invariably make an error. Paper trade only if you’re not experienced with call-spreads. Read the chapters on options in investing basics. Chapter 4. Talk with our broker as well. Play it safe.
Hi Sam,
Thanks and appreciate you detailed responses.
I don’t know if this is already addressed somewhere, but I have this question on what is the criteria for buying call vs buying call debit spread? in both cases we are bullish, sounds like with call debit spread we are cautiously bullish as compared to call where we are super bullish,
is my understanding correct?
Not quite. we can be super bullish and be forced into spreads just based on pricing and other elements. It concerns volatility crush, time value and other issues.
With spreads, one is both long and short an option. That means if one loses a lot of value due to something like volatility crush, then so does the other. They off-set each other as to those elements.
With an open ended call, it has time value attached to it. Suppose we bought the QQQ May 16, $520 calls a month ago when the QQQ was trading at $515 a share. After a month, if the stock has only gone up $10, those are likely red by now or maybe slightly higher if we’re lucky.
But the $530-$540 spread would maintain a lot of its value given how close the QQQ is to reaching $530 a share. And once the QQQ closes the $530 threshold and gets up to $535, less time actually HELPS a spread instead of hurts.
A call option loses value over time period. Each day that goes by, it losses a little value — called theta decay. Theta decay works very different with call-spreads.
With calls, if certain events occur between when one buys the option and when one closes it — such as another leg lower, consolation or drop in volatility — that trade may fail to perform or will permanently perform less than expect even if the trade is ultimately right.
If someone bought the May $520 calls today and the QQQ pulled back, went sideways, bounced, pulled back and then eventually rallied in late March to $550 a share, those options will NOT produce the same return as they would if the QQQ had just immediately rallied. With Call-spreads the performance could be even better with time value eroding. If the QQQ dropped, went sides, rebounded, dropped again and then rallied to $550 by late March, it’s worth MORE at $550 late march than it would be today at $550. Not the case with calls. That’s the big issue.
With call-spreads, it gives us more flexibility if the trade doesn’t immediately go our way.
hi Sam, if I am unable to buy call spreads how should I approach the buyers today? I ended up buying straight calls (worked out this am) but am not sure if it’s too risky of a play to hold them or what your opinion would be
the buys* not buyers
Open ended calls are very risky. I’d read all the comments in the comment section. This comes up quite a bit.
When we decide to buy a call spread, we’re very deliberate in making that decision.
Often it’s because we don’t need to worry about volatility or time value as much with call spreads. It gives us flexibility.
But I would read the other comments.
2nd leg down?????
Any reason why you’ve opted to hold both open ended calls and call spreads of AMZN in Baratheon?
Yeah, so on Friday when we bought the Amazon calls, I was happy with the pricing on those calls. They seemed relatively cheap compared to Amazon’s price movements. With a rebound I feel pretty confident those will go up in value. So we went ahead and bought the open ended call.
The reason we bought a spread today instead of adding to our call is because we already owned an Amazon position that we had allocated $1200 toward. If we bought another option, we’d be committed to $2200-$2300. That’s too much exposure to Amazon.
Buying the call spread for $500 allowed us to increase our exposure without being in a $2200 position.
It’s about being able to layer into the trade without buying too much of a position.
Sam, what are your thoughts on NVDA going into earnings? Are you leaning up or down? For some of your investment portfolios that do not have direct NVDA hedges, would you look to buy puts or sell covered calls before Wednesday’s close?