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SUMMARY
TJ The Wheel Deal outlines his approach to managing a substantial position in Micron Technology, leveraging covered calls, naked calls, and short puts to mitigate losses and generate premium income. He emphasizes the tactical nature of the trade and discusses potential adjustments based on Micron's price movements and upcoming earnings.
MAIN POINTS
- Holds 5,000 shares of Micron at $1,044 each, currently down about $200 per share, and has sold 50 covered calls at a $1,150 strike expiring soon.
- Has sold 150 naked calls at a $1,100 strike to hedge against further downside, and 500 short puts at $350 for additional premium.
- Plans to continue selling options and rolling positions until shares can be delivered at a profit, treating the position as a trade rather than an investment.
- Considers possible scenarios if Micron's price drops significantly, weighing the pros and cons of holding shares versus adjusting options strategies.
- Describes the ideal scenario as Micron's price stabilizing or rising, allowing for repeated covered call cycles and ongoing premium collection.
- Reflects on similar experiences with other stocks and reiterates the goal of manufacturing a win through active management.
DETAILED ANALYSIS
The current position consists of 5,000 shares of Micron Technology purchased at $1,044 each, with the stock trading at $854, resulting in a significant unrealized loss. To offset this, a multi-layered options strategy is employed. Fifty covered calls have been sold at a $1,150 strike price, expiring in the near term, with an extrinsic value of $81,000.
If Micron remains below this strike, the premium is retained; if it rises above, the shares can be delivered or the calls rolled to a future cycle for additional upside. To further hedge the position, 150 naked calls at a $1,100 strike expiring later in the month have been sold, generating $46,000 in premium. This move is designed to provide some protection against further declines, as each $100 drop in Micron's price translates to a $500,000 loss on the core equity position.
In addition, 500 short puts at a $350 strike expiring in December have been sold, offering the potential to collect $818,000 if Micron stays above that level. The combined option premiums exceed the current unrealized loss, providing a buffer and a path to profitability if managed carefully. The overall plan is to continually sell and roll options, aiming to eventually deliver the shares at a profit.
The approach is tactical, not based on a long-term investment thesis, with the intent to reassess after the next earnings call.
The ideal outcome would be for Micron’s price to stabilize or trend upward, allowing for repeated cycles of covered and naked call selling. If the stock declines sharply, the strategy would shift to maximize premium collection at lower strikes, though this would require difficult decisions about holding or adjusting the position. The shares themselves do not expire, offering some security, but their high delta means substantial exposure to price movements.
The speaker notes that this pattern of initial drawdown and subsequent recovery through options management has occurred with other stocks in the portfolio, emphasizing the importance of active management and adaptability.
LINKS
- Tastytrade referral signup link
- YouTube channel membership page
- TJ The Wheel Deal's X (Twitter) profile
- StreamYard $10 discount offer