Tech and semiconductors are hated right now. I don't know how low processors can go or when they will bounce, but I did a risky little trade today to take advantage of the current conditions. Basically, I'm betting Advanced Micro Devices (NASDAQ:AMD) won't go bankrupt.
On Tuesday I sold (shorted) Jan 2009 $10 strike puts [VVVMB] at $1.12. Should the puts get exercised against me, my cost basis would be $8.88 a share. I'm quite happy owning AMD at that price, unless the company is in bankruptcy. But I don't think that will happen.
Because I have an aversion to unfunded margin calls, I can put some cash into a treasury note with a similar maturity to the puts in case they are exercised. (Jan 15, 2009 3.25% notes (yielding 4.65%) to be exact). If AMD rallies and the puts I sold for $1.12 drop in price to under $0.30, I'll just buy them back, freeing up cash for other trades.
Disclosures and Confessions: I own a small (1/6 max size) position AMD that was painfully acquired last July at $17.40. It was part of my buy tech in the summer trade. I neglected to sell this small position (regardless of price) in December/January as was my plan. In this case, I was neither lucky nor good. This is known as poor execution of a good plan. I also have the put position described above.