In a previous article, I shared how the increasing unrealised losses in my 3 Nvidia SELL CALL (of which I was naked on 200 shares) was creating a liquidity crisis on my account as Nvidia’s share price kept rising.
My Nvidia Time Bomb (-USD141.5k Unrealised Loss & Counting) | Why You Should Never Sell Naked CALL | The Danger Of Short Selling
I managed to find a way to mitigate this issue by converting one of my 3 SELL CALL contracts into a SELL PUT contract and achieve some kind of liquidity balance with both bullish and bearish strategies executing at the same time.
I Found A Way To Fix My Broken Covered CALL & Naked CALL Positions, While Releasing Stuck Shares, Unrealised Profits, Without Hurting Liquidity
The New Emerging Liquidity Crisis
A new liquidity crisis is emerging due to the falling share price of Tesla, which has dropped more than 40% YTD.
As I held 710 Tesla shares and had 2 SELL PUT contracts, a falling share price would mean a drop in share value and an increase in unrealised loss for the SELL PUT contracts. Every 1 dollar drop in share price would decrease my excess liquidity by USD710 and every 10 dollar drop in share price would decrease my excess liquidity by USD7.1k. As I had only S$20~30k of excess liquidity left, I could not just watch the share price fall every day without doing anything.
My Strategies
The most straight forward method to increase excess liquidity is to top up cash into the brokerage account. However, I do not have more spare cash to pump into my account and thus, I had to innovate and think of other strategies that can help increase my excess liquidity. I share below on the 3 strategies that I use.
Strategy 1: Buy Tesla PUT
The first strategy that I used was to BUY PUT on Tesla shares, which was a bearish strategy and it helped when Tesla’s share price continued to fall.
Reference: [15 April 24] Bought 1 x Tesla PUT Contract
Strategy 2: Convert SELL PUT to SELL CALL
I converted my SELL PUT contract to SELL CALL contract and as the share price of Tesla dropped, I earned unrealised gains instead of accumulated unrealised loss.
Reference: [16 April 24] Convert Tesla SELL PUT to SELL CALL
Strategy 3: Sell Covered CALL on Tesla
Selling Covered CALL on Tesla allowed me to earn some premium, which in turn, increased the excess liquidity in my account.
Reference: [18 April 24] SOLD 2 x Covered CALL on Tesla
The above trades have already been profitable as Tesla’s share price continued to drop by the day. I intend to close them and take profit once Tesla’s share price starts to recover and rebound.
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