SMCI Options

 Options trading can be a powerful tool for investors looking to enhance portfolio returns and manage risk. Recently, I implemented a strategy by selling PUT options on Super Micro Computer, Inc. (SMCI). In this post, I’ll walk through the rationale behind the trades, the potential outcomes, and how this strategy fits into a broader investment approach.

The Trades:

• 10/10/2024: Sold SMCI $40 PUT expiring on 10/25/2024 for a premium of $81.

Rolled the above call into below call.

• 10/11/2024: Sold SMCI $40.5 PUT expiring on 11/01/2024 for a premium of $55.

Both trades involve collecting premium income while managing the risk of potentially acquiring shares of SMCI at prices lower than their current market value.

This Brought a total $136 in  premiums.

Given the volatility and recent upward movement in the tech sector, Here’s why:

1. High Volatility: Higher volatility in stocks leads to higher option premiums, which translates into more income for PUT sellers.
2. Growth Potential: If I end up being assigned shares at my strike price, I could own SMCI at a discount to current levels, which is attractive considering the company’s long-term growth potential in AI and data infrastructure.

hat’s a PUT Option?

When selling a PUT option, I’m agreeing to potentially buy 100 shares of the underlying stock (SMCI in this case) at a specific price (the strike price) if the stock falls below that price by the expiration date. In return, I collect a premium upfront, which is my income regardless of the outcome.

Breakdown of My Trades:

1. SMCI $40 PUT, expiring 10/25/2024

   • Premium Collected: $81
   • Breakeven Price: $40 (strike price) - $0.81 (premium) = $39.19
   • Outcome: If SMCI stays above $40 by 10/25, I keep the $81, and the option expires worthless. If it falls below $40, I’m obligated to buy 100 shares of SMCI at an effective price of $39.19.

2. SMCI $40.5 PUT, expiring 11/01/2024

• Premium Collected: $55
• Breakeven Price: $40.50 (strike price) - $0.55 (premium) = $39.95
• Outcome: If SMCI stays above $40.50 by 11/01, I keep the $55. If it drops below $40.50, I buy 100 shares at an effective price of $39.95.

otential Scenarios and Outcomes

1. Scenario 1: PUTs Expire Worthless
   In the ideal scenario, SMCI’s stock price stays above $40 and $40.50, and neither PUT is exercised. This means:

   • I keep the total premium of $136 ($81 + $55) as profit.
   • I don’t have to buy any shares, leaving my cash available for future trades.

2. Scenario 2: PUT is Assigned
   If SMCI’s stock falls below $40 or $40.50, I’m obligated to buy 100 shares per contract at the strike prices. Here’s the math:

   • For the $40.50 PUT, my effective purchase price would be $39.95.

   These prices could represent an attractive entry point into SMCI if I believe in the company’s long-term growth prospects, particularly with its positioning in AI and data center markets.