On August 18, I sold my largest policy to date on KLA Corp $KLAC ( ▼ 1.01% ), the semiconductor inspection and measurement company.
In the past, I’ve been exposed to potential losses around the $150-$400 range. On this deal, I can lose $761.99.
I sold this policy because:
1) It is only for 31 days and I plan on exiting within 10-17 days or 50% profit, whichever is sooner. Normally, my policies are longer, but this shorter-term policy reduces my time in the market.
2) KLA Corp is a financially strong company, so I don’t expect a major drop in its stock price within 10-17 days.
I'm not sure this was a good deal, though. My dollar risk is high and my cushion is below 20%. I should have demanded a larger cushion.
Since selling the policy, KLA’s stock price declined from $193.35 to $184, and my cushion went from 17.25% to 13%.
The return is also below 20%. In the past, I accepted sub-20% returns, but my cushion was over 20%.
A lower cushion and a lower return are not a good combination.
Risks Before Returns
I was too focused on how short the policy was. I should have paid more attention to the cushion.
I need a ranking system where I focus on the amount of money I’m risking first, the cushion second, the length of the policy third, and returns fourth. Analyzing the first three forces me to pay attention to the risks that I’m taking.
Risk must always come before returns because if I take too much risk, the returns will never materialize.
I cannot allow the complacency of the stock market to put me to sleep. The market keeps rebounding, and this is making me forget that the market is not safe right now.
The chip market is full of speculation and does not reflect the risks present in the tech industry and economy.
The hyperscalers are taking on massive debt to build the AI infrastructure.
The pillars of the AI industry, OpenAI and Anthropic, are unprofitable and taking on further obligations while companies are moving to open-source AI models.
America is fighting with Iran, causing high gas prices.
Consumers are being pinched.
Treasury rates are moving higher.
The market is not safe. Be conservative. Be prudent. Be patient. I am not in the mood to lose money on these policies.
I know the market will crash soon, so I need to keep my guard up and stop showboating.
Remember to pray for the Bronx and its success.
Rejoice not over me, O my enemy; when I fall, I shall rise; when I sit in darkness, the LORD will be a light to me.
Micah 7:8 ESV
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