Stocks are moving higher today following a sharp pullback last week that continued on Monday and Tuesday. With a Federal Reserve announcement scheduled for 2:30 p.m. Eastern, I think it’s wise to hedge our leveraged recovery positions in Advanced Micro Devices (AMD) and Taiwan Semiconductor Manufacturing (TSM) by purchasing puts.
Note that these are purely defensive positions. The goal is for them to expire worthless. However, in the event that the market sells off sharply on a larger-than-expected rate hike or particularly hawkish comments from Fed Chair Jerome Powell, these puts could be very profitable.
3 AMD Jan 2023 (1/20/23) 70/Sep Week Five (9/30) 82 Call Spreads
Current Stock Price: $76.06
Cost Basis: $105.73
Action: Buy to open 3 AMD Sep Week Four (9/23) 70 Puts for around $0.25 each ($0.75 total), but adjust as needed to buy puts today
New Cost Basis: $106.48
4 TSM Jan 2023 (1/20/23) 70/Sep Week Five (9/30) 81 Call Spreads
Current Stock Price: $77.96
Cost Basis: $109.39
Action: Buy to open 4 TSM Sep Week Four (9/23) 75 Puts for around $0.31 each ($1.24 total), but adjust as needed to buy puts today
New Cost Basis: $110.63