$RKLB - Why I sell into strength.

2024年8月17日

RKLB Rocket Lab closed below the $6.60 resistance. The RSI just entered the overbought territory. The previous strong resistance area now acts as strong support. The measured move for the current base breakout is $8.

Why do I sell into strength on options?

Option premiums are inflated during an upswing. When the stock price stabilizes, even at the same level, the premium tends to fall. This is why it makes sense to sell covered calls or ordinary call options that you have during the upswing.

The challenge with this stock is that venture capital firms like Khosla Ventures often unload their shares when the stock gains momentum, effectively capping its rise. For instance, Khosla Ventures distributed 14.5 million shares on August 12. What do you think they’ll do? Their cost basis is pennies per share. Now that the stock is above $6, they can sell those shares and reinvest in other promising startups.

Given this, it makes sense to take advantage of wild swings like this. For example, 23 Aug $10 strike calls were trading at 90 cents per contract this morning. By the end of the day, they were trading at 20 cents. If you had sold covered calls this morning on your shares, you would have profited 70 cents by the end of the day.

Think about it this way: in the worst case, you still end up with a profit. In the best case, the stock comes back down, and you can increase your position size.

As always, you do you. No judgment here.

Have a great weekend!🍻