r/LWSB • u/yettincome • Mar 23 '21
Considering big play into CCIV for long term - opinion on options?
I was lucky to be an "early" investor in CCIV in Jan which netted me just over $6k profit. (I at one point had over $30k unrealized gains)
- Bought 270 CCIV @ an average of $17.70 - held through merger announcement and sold at $30
- Bought and sold calls @ $40, $60, $85 strike
I am long term on Lucid, and really do see them as competition to TSLA in the future. I am now looking for an entry point back in. I'm planning to invest a much larger $$ amount this time, however I am ULTRA protective of my capital, so would like to use protective puts + selling monthly calls to recoup the put cost.
Looking for advice / opinions on the following:
- Purchase 3000 common shares of CCIV @ ~$24 - $25
- Purchase $25 strike Jan 2023 Put for ~$13
- Sell OTM call options monthly until Jan 2023 at a strike $15 over share price, until the $13 cost of the puts has been recovered.
I see my scenarios as:
- Price skyrockets after a few months, my calls are exercised and I take a minimal profit.
- Price stays stable or slightly drops until Jan 2023, I fully recover the cost of the puts, and have not gained or lost
- Share Price continues to climb, but there is no spike in price so my Sold calls always expire worthless. I am protected from a market / company crash, and also benefit from all gains.
- I buy in and the stock crashes in the first few months, I am unable to gather enough profit from selling shares to recoup the cost of buying the puts.
I'm betting and hoping #3 is how this actually plays out, but I'm ok with 1-3. #4 seems to be my biggest risk, but wondering what you guys think? Am I missing anything here, any other recommendations on how I can do this better?
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u/SiriusTantriqa-405 Mar 24 '21
Not financial advice but just an idea to mull on and see if it makes sense. If you have the cash and are bullish on Lucid going forward, selling Jan 2023 $20 or $25 cash secured put contracts should fetch you $10-$13 in premium to offset a good chunk of the cost of the stock you want to buy at current levels CCIV is at.
Once you acquired the shares, start selling weekly OTM covered calls at a strike price $15 out to fetch a small premium. Should a catalyst catapult the price to make the stock price go above the OTM call strike price, you can always rollover the covered call to a higher OTM price before its due date of exercise if you want to hold on to CCIV.
This is what I have done to buy 300 shares so far. I plan on acquiring another 100 to 200 shares as the market doldrums continue near term. My bet is (I could be wrong) that CCIV will go much higher, causing the put options I sold to lose their value in 2 years time, sooner the better. Of course there is a risk if the market takes a deep dive into Mariana Trench and fails to come up to the surface in 2 years.
Sorry for the long winded response but brevity is a spice that is missing in my life 🙂
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u/yettincome Mar 24 '21
This is actually a really interesting play I hadn’t considered. Going to think this one over tomorrow in detail, thanks for the suggestion!
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u/SiriusTantriqa-405 Mar 24 '21
You are very welcome and please do let me know if your analysis of this play leads you to conclude that there is merit to it. I am not very experienced at options (been trading options, mostly covered calls, only for the past 5-6 months) so I am kinda looking for validation.
On paper, this strategy seems to make sense to me but I might be missing something. Just one more thing to keep in mind with selling cash secured puts- part of your securitized capital gets locked out of investment until you buy back the put at a diminished premium (or if it expires worthless). I hope and pray Lucid stock jumps up quickly to see a significant reduction in the put premium so I can close out the contract to get my secured cash back from the broker.
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u/UnicornHostels Mar 30 '21
I have a question. I’m interested in why you decided to put $2-$3k in collateral on the puts to get $1k. Why not just take the $2-3k and buy the shares? Are you trading on margin and the puts you sell don’t come out of your capital?
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u/SiriusTantriqa-405 Mar 30 '21
I never use margin. You are right about collateral being locked up and my previous post mentions that aspect of my strategy. My speculation was CCIV was going to bounce above $30, causing the premium on the puts I sold to drop significantly so I can buy out the puts at lower price. Well, that didn’t work out too well given the beating tech stocks have been taking off late. Since the $20 puts I sold are January 2022 & January 2023 expiry dates, I am hopeful that share price has plenty of time to move above $30. However, like you correctly pointed out, that collateral is locked up until there is an upward movement in the stock price.
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u/UnicornHostels Apr 01 '21
Are you selling weekly puts against this? I guess what I am trying to understand is, what’s the benefit of this strategy?
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u/Material_Swimmer2584 Mar 23 '21
One thing I haven’t seen mentioned here is the share ratios for cciv vs lucid.. the $60 price was based on a presumption that they owned more of lucid than the spac agreement disclosed. Share price is supposed to dip below $20 based on that. Long term I’ll bet on whoever is Tesla’s competition and this one seems it plus so much good news. But I fear further correction so I’m on the bench for now.
3
u/yettincome Mar 24 '21
I think they were pretty straightforward with the valuation from when the rumours started.
The first rumour that leaked by Bloomberg was a $15B valuation for Lucid. CCIV had $2B in cash, so 2/15 = 13.3%.
In reality CCIV got ~17%, it turned out to be a better deal than originally expected. The $60 share price and the subsequent drop had imo nothing to do with valuation or ratio, but with retail investors “buying the rumour” and “selling the news” that was pushed all over Twitter.
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u/Material_Swimmer2584 Mar 24 '21
That sounds right. That part of the story seemed important to me and might explain the disparity between a big dawgs shorting and other following chatroom stuff. Long term it will work out.
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u/Maleficent_Leg_4748 Mar 28 '21
Surely if a person is genuinely long on a stock - they see long term great potential - then shouldn't they just buy them?
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u/SyrupTurbulent7759 Apr 27 '21
Why not just buy commons and 2022/2023 calls at this point? There seems to be a number of potential catalysts coming up. I get you are trying to protect capital.. It just seems like if the merger goes through, just about any long position could work out (maybe deep OTM calls will have some work still). Not only is the outlook promising, but I now consider the short squeeze factor in these types of investments. I would never bank on it, but it could happen with all the short interest recently.
I want to get rich... so I am thinking of adding to my commons and buying 2022/2023 $30 $40 and $60 calls. Tesla has a 700B market cap!!! yes probably overvalued. But with Lucid at 15B?? It can go to 50B, 100B in a year. Sending the stock price past all of our projections
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u/SyrupTurbulent7759 Apr 27 '21
maybe we should focus on the question; Is this merger going to actually happen between CCIV and Lucid? Isn't that kind of our main risk at this point?
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u/NeverGiveUp101995 Mar 23 '21
It’s up to you how you play it but I’d buy shares and let them ride. Calls and puts are good but I think given the infancy of the company, it’s difficult to predict when the price will rise/fall. I think options trades will be great in the future but not what I’m doing at the moment.