Assignment Risk - It's fr fr

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This is not investment advice and is intended for entertainment purposes only.

Assignment Risk - It’s fr fr

As many readers may know from my previous pieces, a large portion of my portfolio is allocated to semiconductor companies.

If you keep up with the market at all, you would know that semiconductor names are up BIG right now with names like $AMD, $NVDA, and $AVGO hitting all-time highs. The Semiconductor index that trades as an ETF ($SOXQ) is up 25% in the last quarter.

With that, I recently acquired 100 shares of $AMD which is an even lot that a covered call can be written on. Since we have some new readers here, let me explain briefly what a Covered Call is:

A covered call is an options strategy where the holder of an even lot (100 shares) writes a contract to sell the shares at a predetermined strike price. The buyer of the call has the right (but not the obligation) to exercise the call if they so please. The seller can collect the premium the buyer pays for the contract (usually more risk = higher premium).

Protecting my $AMD Position

Since 2021 when I was still working at Robinhood, I’ve been dollar-cost averaging into $AMD. I was bullish on the semiconductor sector and was slowly building up a position in my high-conviction stocks ($AMD, $AVGO, $NVDA).

Flash forward to 2023 when I finally get to 100 shares and am ready to deploy my options strategy: covered calls.

The first few premiums were well received, I wrote the contracts with a conservative strike price and continued to roll them once they accrued 90% or more of their value.

With my most recent $AMD contract, the price jumped up to $175 which was $10 over my strike price of $165 for the contract. All of a sudden I was neck deep in the risk of being sold assigned.

As I watched the price go up, my Covered Call got more expensive to buy to close. I was sweatin’.

The longer I waited the more I paid to close the contract.

In the end, I wiped out the entirety of my premium gains for the position by closing it out for a net loss.

All of this to say, assignment risk is a real thing and something I want to be talking about more as we enter a potentially bull market and interest rates start to lower.

Ways of Combatting Assignment Risk:

1. Choose the Right 'Dance Partners'

2. Be More Conservative

Not all stocks are fit for the task.

If you are chasing higher premiums, pick the ones that have been the life of the party during the bull market. If you want more stability, go with a stock that doesn’t have as high of price volatility.

To mitigate assignment risk you can also write covered calls that are further out of the money and collect the smaller premium - sometimes that means swallowing your pride.

As with any options strategy, there is always risk.

Weekly Tidbits

• We’re Baaaaaaack: WeWork’s former CEO and founder Adam Neumann, tries to buy back $WE after it filed for bankruptcy just a few months back

• Bad Week to be the Chinese Stock Market: The Chinese market is in a tough spot as critical economic data is announced tomorrow

• Earnings Yeets and Beats: $SNAP was down bad (-30%) after a less- than desirable earnings call. On the other side of the coin, $META, $AMZN, Eli Lily, and $AAPL had solid earnings calls that were well received by investors.

Meme of the Week

Credit to @RobertMSterling