To The Moon

The US stocks performed its best month 2022, with the S&P 500 rising by 9.11%,and the Nasdaq soaring by 12.35% for the month of July.

Amazon jumped by 10% after its outperform earnings. While Microsoft and Google missed market expectations , but also rose. The situation was the opposite to the previous two earnings seasons.

I am bullish on the market. But the daily RSI of SPX has seen a little oversold, and SPX may be stepped back in the short term.

If there are profitable stock positions, it is very appropriate to buy some cheap PUTs to hedge. If you want to stop the profit, you can also Sell Covered Call to earn extra premium.

Today, I will talk about how to use options to enhance returns and hedge.

​$Tesla Motors(TSLA)$, rose by 32% for the month of July. I believe many friends bought TSLA around $600-$700, and now gain over 20%. My average cost was a little higher. I took over TSLA at $740 which exercised from Sell Puts, and it is gained by 20% now.

I want to sell the shares at price of $1,000. But I think it rise too much in short-term, and I am worried that it will fall back.

1) Buy PUTs

In order to cope with the short-term correction, I plan to buy a PUT contract at price of $700, and the cost is about $335 due on Aug. 19. That is, my long positions plus put to form a hedge. If Tesla's share price steps back, the profit of put can offset some of share losses. Of course, if Tesla continues to up, the $335 will be lost, which is purely my hedging cost.​

​

2) Sell CALLs

I expect that I will stop profit when TSLA goes to $1,000 t. So I will sell Call option with an exercise price of $1,000.

The premiums due on August 19 is $10.5. And the shares + sell Call form a combo. When the share price rises to $1,000 on the due date, my shares will be exercised to stop the profit at $1,000. I will get the premiums, regardless of whether the stock price. This option is very cost-effective for me who wants to stop the profit at a specific price.​

1+2

Now 1+2, that is, I hold Tesla shares, then I buy a put and sell a call at the same time. The strategy is called Collar, which I have introduced before.

In fact, the premium from selling call will offset the cost of buying put.

In Tesla's case, because the stock price has risen a lot, the cost of buying put is lower than the profit of selling call. In the current market, whether it is Tesla, Apple and Amazon, the tech-stocks that have rebounded a lot are very suitable for this strategy.

​$Tesla Motors(TSLA)$​$Invesco QQQ Trust(QQQ)$​$SPDR S&P 500 ETF Trust(SPY)$