$Arm Holdings (ARM.US)$ what do you do when your train derai...
$Arm Holdings(ARM.US$ what do you do when your train derails? if you're reading this you are long and you are wrong (like me) we are shareholders that just had our train derail and our witnessing the Carnage the morning after the accident. what do we do? basic logic wood dictate one of three things 1. you sell the stock lick your wounds and move on
2. you just hold the stock and hope for greener pastures in the future that this is a one quarter aberration because you keep telling yourself all these bobbleheads on TV say we're only in the first inning of the AI revolution which is going to be the greatest evolution this country has ever seen.
3. you average down somewhere along the way you were told if you loved it at 120 or a 130 or wherever you bought it, it's got to be a fantastic deal down here around 96-97. so you buy more and you reduce your cost basis by averaging out the amount of shares.
I'm doing none of those three.
I'm going to commence a covered call writing campaign and let me explain how it works.
this may take a secondary message so bear with me with my rather long winded explanation.
hi beta stocks which this company is tend to have a lot of movement throughout the course of not only a day but a week and a month therefore the options tend to have quite a bit of extra premium built-in to each weekly, biweekly, monthly strike price.
so I'm going to be using an example that is based off of yesterday's price but the premium should hold about the same as a matter of percent despite the stock being ratcheted down this morning because options are not trading pre-market.
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35+ yrs in the trenches, raised tens of millions for start ups, syndicate ipo's, yrs on trading desk mkt maker.
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10baggerbammOP : yesterday it was 106 and again today it's down but the premium built into the options is going to remain about the same. so I would sell in May 17th 110 strike and collect 6.35 for one week and one day is worth of time.. so that you understand at any point in time the person that buys that call from me could exercise me 99% of the time in the universe that never happens typically it happens on expiration day at Friday at 4:00 p.m. if you're at or in the money sometimes even an eighth or a quarter out of the money meaning the stock would be 109 and 3/4 you're out of the money on a 110 strike. it could be called away meaning that following Monday morning you have cash in your account and you lost the stock at the strike of 110. in 35 plus years of doing this very very seldomly has an out of the money option been exercise but I have had it happen on the random occasion when I'm a quarter 1/8 out of the market it has happened. so using this example assuming the stock stays below the strike.. for every hundred shares we collected $635. assuming the stock was not called away the following Monday I would select another strike about four 5% higher than the current price and I'd write it for either that Friday or the following Friday's expiration and collect a similar amount 678 depending upon the volatility of the stock on that given day or the prior days leading up to it so for a week up to two weeks because I keep them very short term I'm collecting between six and $800 on every 100 shares.. what this means is in roughly 2 weeks I recoup the losses of the stock today the drop in the stock.. so that's what I'm going to be commencing with because I believe this is sadly dead money in the near term arm typically does not announce contracts in between quarters and announce the overall productivity at the end of the quarter when financials come out.
10baggerbammOP : so that's my game plan I am at a loss it sucks I'm pissed off but that's investing and I posted yesterday that the hedge would be the 95 puts and I took a screenshot and I showed everybody so hopefully some people had the foresight to follow through with my suggestion. because if you did you're going to have a very nice payday this morning as far as everybody else you have three choices old school if you will sell the stock hold the stock average down... I have just shown you what I'm going to be doing today in an effort to put some cash back into my account, lower my cost basis and bring my position back to parity where I am not at a loss of capital and once I reach that point of parody I now have a decision to make do I continue writing the calls which I've done before on other companies or do I just sell it and that is something that I will determine when I cross that road in the future. I hope this covered call approach helps those who find themselves in this predicament of a train wreck this morning