I Bought an AMD Call Option

Trade log star date March 1, 2024. Today I opened my first option trade in a long time. Yes, I own the covered call writing ETF’s QYLD and RYLD, but this was my first call option in two decades.

Why did I do this? Simple, because “stonks” go up, at least in a strong bull market. There’s such a market euphoria right now that people are blindly throwing money at AMD, NVDA, and host of other shit related AI stocks that there are new all-time highs being made daily.

Besides, you know how much I love new all-time highs, so I bought 5 AMD call for a strike price of 230 for 8.95 per contract and May 2024 expiration. This call option was definately out of the money when I bought it at 10:30 AM, just as I was boarding and Amtrak train from Washington DC back home. I got the trade confirmation as the train rolled out of the station (who doesn’t love technology).

When trading closed on Friday, I was up over 15%. Insane. Now I know why these “kids” are YOLOing their entire life savings into these markets. They can become millionaires overnight and conversly, they can turn their millions into a few hundred dollars if they get on the wrong side of the trade.

While my position is very small and (time) decaying, my thought on executing this trade is this:

1. I get my feet wet in the options market again;
2. I’m managing my risk (not YOLOing);
3. I get to update my global wealth building strategy, and;
4. I’m unlearning how to trade like a Boomer.

Although I’m Gen X, I’ve been taught to trade like a Boomer. I buy the actual security and hold it, so if I bought 200 shares of NVDA right now I’d be paying close to $200,000 out of my pocket. That’s a big sum of money to come up with and put into a single position. Why? Because I’m not a hedge fund and I wish I had $200k lying around to do this because I don’t trade on margin.

Instead of that, I could trade an option on a stock and pay only a small sum of money. A sum of money that I could bear to lose. That’s a well defined measure of risk and I can manage that nicely. The only negative part of trading options is that I’m dealing with ’theta’ or time decay. All options expire and if you don’t sell your option by a certain time, it becomes worthless and you lose your initial buy.

That’s ok, because it’s a problem you can manage by buying far out of the money options, assuming you believe the stock will go up and touch your strike price before it expires. So there’s the gamble, do you believe that you can buy enough time so that your option will pay off?

It’s an interesting problem but it feels more elegant. Only time will tell if I was a fool or not.