ChatGPT, created by OpenAI, gained 100 million users in two months, sparking an AI boom. The technology relies on many specialized computer chips, which may require large amounts of electricity in the future.
A recent analysis suggests AI servers could use 85 to 134 terawatt hours annually by 2027, like the yearly electricity consumption of Argentina, the Netherlands, or Sweden.
In 2022, data centers powering computers used 1 to 1.3% of global electricity, excluding cryptocurrency mining. Estimates put AI energy use this high based on projected sales of Nvidia A100 servers, commonly used in AI.
Nvidia dominates AI hardware, causing a chip supply bottleneck. Despite concerns about energy consumption, Nvidia defends its chips as more efficient for AI tasks.
Experts advocate for considering electricity use in designing AI hardware and software. However, rapid AI advancements prioritize performance over environmental concerns.
California enacted climate disclosure laws, requiring large companies to reveal carbon emissions and climate-related financial risks. These laws may set a precedent for other states and potentially influence federal regulations.
Will AI power consumption put a cap on future growth?
Covered calls are a popular option trading strategy, typically involving owning the underlying stock and selling call options against it. However, for those with limited capital, a “poor man’s covered call” offers an alternative approach. This strategy involves buying a long-term call option while simultaneously selling short-term call options against it. Let’s delve into this strategy and see how it can be a viable option for traders on a budget.
Poor Man’s Covered Call
Understanding the Basics
Before diving into the poor man’s covered call strategy, let’s break down the fundamentals:
Call Options: Call options give the holder the right to buy the underlying asset at a predetermined price (the strike price) within a specified period.
Covered Calls: In a traditional covered call strategy, an investor owns the underlying stock and sells call options against it. This generates income from the premiums received but caps potential gains if the stock price rises significantly.
Poor Man’s Covered Call: This strategy involves buying a LEAP (Long-term Equity Anticipation Securities) call option and simultaneously selling short-term call options against it. The LEAP option serves as a substitute for owning the stock.
Advantages of the Poor Man’s Covered Call
Now, let’s explore why this strategy might be appealing:
Lower Capital Requirement: Unlike traditional covered calls that require owning the underlying stock, the poor man’s covered call allows traders to participate in the strategy with less capital. LEAP options are typically cheaper than buying the stock outright.
Limited Downside Risk: Since the risk is limited to the premium paid for the LEAP option, traders have defined downside protection. This can be attractive for risk-averse investors.
Time Decay Benefits: Short-term call options sold against the LEAP position help offset the time decay (theta) of the LEAP option. This can potentially enhance the strategy’s profitability, especially in a stagnant or slightly bullish market.
Steps to Implement the Strategy
Here’s a step-by-step guide to executing a poor man’s covered call:
Select a Stock: Choose a stock with bullish prospects and relatively stable price movement.
Choose a LEAP Option: Look for a LEAP call option with a distant expiration date, typically one year or more.
Buy the LEAP: Purchase the LEAP option, aiming for a strike price slightly in-the-money or at-the-money.
Sell Short-Term Calls: Sell short-term call options against the LEAP position. These should have strike prices slightly above the current stock price and expire in the near term (e.g., monthly options).
Manage the Position: Monitor the position regularly and adjust as needed. If the stock price rises significantly, consider rolling the short-term calls up or closing them to lock in profits.
At CFU, we trade PMCC’s to generate steady income streams from stocks. This last month, we ran this strategy against BRK.B and generated a profit of $600 per contract or 19.20% return on the risk we took for just 24 days.
Come trade with us, learn how to trade options and make some money.
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