It’s time to initiate a LEAP call recovery tactic for Advanced Micro Devices (AMD) and Taiwan Semiconductor Manufacturing (TSM).
I covered this strategy in a recent coaching session. It involves using the capital after being called out of our shares — $7,500 per 100 shares for both AMD and TSM — to purchase long-dated call options.
After purchasing the LEAPS, we will sell short-term calls against them to bring in income, taking advantage of the leverage the LEAPS provide to potentially get back to breakeven faster than we could by selling puts or owning shares and selling calls. Note that the net debits we have on the positions will be factored into our cost basis.
I am recommending as close to a dollar-for-dollar reinvestment of our capital (again, $7,500 per 100 shares of AMD and TSM) as I can for these recovery positions.
If you are not familiar with this strategy, please review the coaching session before putting on these trades.
Note that these trades are only for people who were in the previous AMD and TSM trades.
Finally, Advanced Micro Devices is scheduled to report earnings on Aug. 2. We will buy a protective put prior to the announcement to hedge against a post-earnings sell-off.
Current Stock Price: $88.84
Net Debit: $38.20
- Buy to open three AMD Jan 2023 (1/20/23) 70 Calls for around $25.05 each ($75.15 total)
- Sell to open three AMD Jul Week Five (7/29) 90 Calls for around $2.59 each ($7.77 total)
Cost Basis*: $105.58
*Cost basis = $38.20 net debit + $75.15 cost of LEAPS – $7.77 in cash from sale of calls = $105.58 (or $35.19 per LEAP)
Current Stock Price: $86.19
Net Debit: $44.91
- Buy to open four TSM Jan 2023 (1/20/23) 70 Calls for around $19.45 each ($77.80 total)
- Sell to open four TSM Jul Week Five (7/29) 88 Calls for around $1.06 each ($4.24 total)
Cost Basis*: $118.47
*Cost basis = $44.91 net debit + $77.80 cost of LEAPS – $4.24 in cash from sale of calls = $118.47 (or $29.62 per LEAP)