1/27/2024 Trade Talk Thursday + Strategy Saturday

Hi readers! I hope you are all doing amazing! This is going to be a huge update, as it will contain the Trade Talk Thursday AND the Strategy Saturday post.

Here is the Trade Talk Thursday post:

Right now, I have on 2 positions: the AMD position and the QQQ position.

The last thing I did to adjust the QQQ position was adjusting the puts, which I mentioned in the last post. Since then, on January 22 (Monday), I bought 10 of the Feb 09 $423 puts. This was just to bring my deltas near 0, and to hedge against any huge move to the downside. I realized that the short puts and the long calls were strongly biased towards the upside, and I needed to hedge that and bring my deltas near 0, so I bought the 10 puts.

Then, on January 23 (Wednesday), I tightened the 423 puts I bought on Monday, by closing out of them and buying the 425 puts, all in the same expiration cycle of Feb 09. I bought 8 of the $425 puts, so i would not heavily exceed the credit I received from selling the 423 puts to close.

On Wednesday, I also adjusted the AMD position. At that point, the short calls were losing a lot of money, but the long calls were making a lot of money. The overall AMD position was in a loss of 50$. So, I decided to short 10 of the Feb 09 $167.5 puts. I did this to make premium of the options, as the puts were out of the money and AMD stock price continued on its solid uptrend.

These were the adjustments I made in the past week, I hope the explanations helped as well!

Here is the Strategy Saturday post:

To start off this series, I will be explaining options so those unfamiliar with trading can learn about them here.

What are options?

Options are essentially the right to buy or sell an asset, such as a stock, at a specific price before a certain date. The certain date is what we call the expiration date, when the option expires.

The price we can buy or sell the asset is what we call the strike price. The price we pay for the option is what we call the premium.

Call options are like making reservations for an asset at a specific price. For example, if I buy an AMD $408 call for $2.50, and if AMD goes to $410 a share, I can exercise my option and buy that AMD stock for 408 instead of the market price, 410. If the AMD stock goes down instead, to 406, then I would not exercise my option. Why would I want to pay 2 dollars extra? In that case, since I do not exercise my option, I just lose the $2.50 that I paid for that option.

Put options are like call options, except you get to sell the asset at the specific price. Let's say I pay $3 for an AMD put option, at a strike price of $408. If AMD goes down to $400, then I would exercise my put option. What would happen is that I get to sell shares of AMD at 408 instead of the market price, 400, meaning I make an extra $8 per share. What if AMD stock goes up, let's say to 415? Then I would not exercise my option right to sell the AMD stock at 408, since I can just sell it in the market for 415. I would just lose what I paid for the option, $3, in that case.

Why are options so great? Let's compare them to stocks. When you are profiting on a stock, you make a dollar for every dollar the stock goes up. That is the same for options, but keep in mind that you paid a premium, so the true profit is: option's profit MINUS premium. When you are losing money on a stock, you lose a dollar for every dollar the stock goes down. That is not the case for options. Remember, for options, if it is not profiting, you can just not exercise it and lose the premium.

This brings me to the main advantage of options: You have limited risk on options. Although you have to pay a premium for the options, that is a small price to pay for the limited risk you get from options.

Here is some more options trading lingo. When an option is profiting, it is In The Money (ITM). When an option is losing money, it is Out of the Money (OTM). When the asset's price is at the option's strike price (meaning 0 profit on the option), it is At The Money (ATM).

Call options are only ITM if the stock price is above the strike price of the call option, and put options are only ITM if the stock price is below the strike price of the put option.

That is it for today readers, I hope you enjoyed reading about my adjustments! I also hope you learnt more about what options are! Thank you for reading, and I will see you in the next update!

Pictures:

Monday: