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Options Trading Journal

My AMD Options Strategy and Trades from 2021 to 2022

Reflecting on my AMD options strategy and trades. What I did right. What did I wrong. What I am going to do next.

Reflecting on my AMD options strategy and trades. What I did right. What did I wrong. What I am going to do next.

AMD is the symbol for Advanced Micro Devices. It designs microprocessors for the computer and consumer electronics industries. Microprocessors are needed in devices of all shapes and sizes, from supercomputers to game consoles, from always-on cloud infrastructures to a child’s laptop. 

My exposure to AMD’s brand is via my laptops and news about Lisa Su, AMD’s CEO, a lady who has a great reputation in a male-dominated industry.

Selling Put Options and Credit Spreads

I sold 2 put options between April 2021 and May 2021. The share price did well and I was able to close them early for a small profit of $318.40. My challenge with continuing with selling put options on AMD is the share price.

It was trading at $83 dollars at that time and therefore, about $8,300 had to be set aside from my trading account if I plan to sell 1 put option. It represented a fairly large percentage of my trading account. So, I was looking for a strategy that required less capital.

I was introduced to credit spreads and thought it was a good way to trade options on AMD without taking up too much capital.

I sold a credit spread on 16 Nov 2021 that only required me to set aside $1,500. I was able to close it 2 days later with a profit of $290.79. It was a great trade.

However, my credit spreads with other stocks didn’t do well and I got cold feet. I left AMD alone until 2022 after attending a workshop to beef up my knowledge.

Learning to Evaluate AMD

At the beginning of 2022, I attended a course called Options Millionaire Intensive bootcamp (affiliate link). OMI is a 3-day live bootcamp (virtual when I attended). I learnt some interesting investing concepts and strategies. One of them is a checklist for evaluating whether a company is good.

I know this is not comprehensive analysis but I think it is a good place to start for beginner investors. Baby steps.

  1. Operating cashflow (OCF) of a good company should be consistently positive. A bonus if it is growing.
  2. Net profit margin should be positive. 10% and more to be considered good.
  3. Interest coverage ratio should be positive. The larger the number the better. Nil is also good. It means the company has no loans.
  4. The current year Price/Earning ratio (PE) should be lower than the 5-yr PE
  5. The current year Earning Per Share (EPS) should be higher than the 5-yr EPS
  6. The Value line should be higher than the current share price. This means that the company shares could be trading at a discount.

Applying the OMI Checklist to AMD (2022)

  1. AMD’s OCF is positive and more than doubled between 2020 and 2021.
  2. AMD’s net margin percentage for 2021 is 19.24%. It was 25.5% in 2020.
  3. Interest coverage ratio for 2021 is 108
  4. Current PE ratio is 39.66. 5-year PE is 105.53. AMD’s share price is currently attractive.
  5. Earning per share in 2021 is 2.61. while 5-year EPS is 1.08
  6. Value line is 2.61 x 105.53 = $282.82

AMD passed the OMI checklist 6 out of 6.

Book value per share is 34.56. Price/Book Value ratio is 2.38 (2022 Q1)

I can either buy shares of AMD or buy long-dated call options also known as Long-Term Equity Anticipation Securities (LEAPS). If I purchase the 100 shares, I have to fork out $11,900. I can of course buy a small number of stocks. But I can also buy a LEAP using less capital.

Poor Man’s Covered Calls

24 March 2022 – bought 1 call option with strike price $110 expiring 20 Jan 2024 at a cost of $3,300. The strike price is at the money (ATM)

Now that I have a call option expiring on 20 Jan 2024, I wanted to start selling Poor Man’s Covered Calls to collect some income.

Between Mar to May 2022, I sold 4 covered calls and collected a total of $182.72 in premiums.

  • Cost of 100 LEAP shares: $3,300
  • Total Options Premiums: $318.40 + $290.79 + $182.72 = $791.91
  • Cost per LEAP share after deducting premiums: $3,300 – $791.91/100 = $25.08

July 2022

My observations after selling 5 covered calls.

  1. The premiums for short term call options are not very high.
  2. I noted that the timing of my contracts are not ideal. I have not found the rhythm for AMD’s price changes. The price of AMD dropped and then recovered twice between April to July. Both times, I sold calls just before a run.

I need to pick better entry points for my call options or else I should just hold the LEAP call option.

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