Jul 17, 202111 min
Hey Everyone!
It looks like the markets took a little breather this week and is on the lookout for upcoming earnings.
Here's SPY:
Here's QQQ:
And here's DIA:
Trade of the Week:
Spinning your wheels: If your covered calls expired worthless this Friday, we recommend selling more calls at around the same strike price as before to collect more premium. If you sold some cash-secured puts and they lost around 80% of their value, you can consider buying back the contracts and reselling them for a further date to collect more premium. If your cash-secured puts expired worthless, you can consider restarting your wheel by selling another cash-secured put.
Pay attention to the delta: You can always look at the delta of the call you are selling since the delta roughly approximates the probability of the price of the stock reaching the strike by expiration. If you see that the delta is 0.10, you know that there is roughly a 10% chance that the price of the stock will reach that strike price by expiration. Likewise, if you see that the delta is 0.20, you know that there is roughly a 20% chance that the price of the stock will reach that strike price by expiration.
Beginners: If you're a beginner, we recommend you starting off with selling cash-secured puts around 1-3 strikes OTM on a steady stock that pays a dividend. This is typically a conservative starting point when starting the Wheel Strategy. If you have been using the Wheel Strategy for a while and have a more bullish outlook, we recommend starting your new Wheel by selling a covered call around 1-3 strikes OTM to not only receive the premium, but also make capital gains if you are called away at expiration.
Advanced: Since it looks like we are progressing forward in the markets, you can consider selling some shorter dated OTM covered calls, around 3 weeks out. We would only recommend this to members if they've been trading the Wheel for a while and have a general understanding of how theta and delta work.
Here are some trade recommendations and see what fits your personal risk-tolerance:
MSFT
Monday Open: $279.16
Friday Close: $280.75
5-day change: 0.57%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT
- MSFT's Current Price: $280.75
- Capital Needed: $28000.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $280
- Premium you'll receive: $643.00
- Cost Basis: $280.00 - $6.43 = $273.57
Starting a New Wheel: Selling a Covered Call on MSFT
- MSFT's Current Price: $280.75
- Capital Needed: $28075.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $282.5
- Premium you'll receive: $595.00
- Cost Basis: $280.75 - $5.95 = $274.80
AAPL
Monday Open: $146.21
Friday Close: $146.39
5-day change: 0.12%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL
- AAPL's Current Price: $146.39
- Capital Needed: $14600.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $146
- Premium you'll receive: $447.00
- Cost Basis: $146.00 - $4.47 = $141.53
Starting a New Wheel: Selling a Covered Call on AAPL
- AAPL's Current Price: $146.39
- Capital Needed: $14639
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $147
- Premium you'll receive: $500.00
- Cost Basis: $146.39 - $5.00 = $141.39
AMD
Monday Open: $91.22
Friday Close: $85.89
5-day change: -5.84%
Starting a New Wheel: Selling a Cash-Secured Put on AMD
- AMD's Current Price: $85.89
- Capital Needed: $8500.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $85
- Premium you'll receive: $330.00
- Cost Basis: $85.00 - $3.30 = $81.70
Starting a New Wheel: Selling a Covered Call on AMD
- AMD's Current Price: $85.89
- Capital Needed: $8589.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $86.5
- Premium you'll receive: $353.00
- Cost Basis: $85.89 - $3.53 = $82.36
NKE
Monday Open: $161.64
Friday Close: $159.85
5-day change: -1.1%
Starting a New Wheel: Selling a Cash-Secured Put on NKE
- NKE's Current Price: $159.85
- Capital Needed: $15750
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $157.5
- Premium you'll receive: $500.00
- Cost Basis: $157.50 - $5.00 = $152.50
Starting a New Wheel: Selling a Covered Call on NKE
- NKE's Current Price: $159.85
- Capital Needed: $15985.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $160
- Premium you'll receive: $368.00
- Cost Basis: $159.85 - $3.68 = $156.17
PINS
Monday Open: $77.23
Friday Close: $68.73
5-day change: -11%
Starting a New Wheel: Selling a Cash-Secured Put on PINS
- PINS's Current Price: $68.73
- Capital Needed: $6800.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $68
- Premium you'll receive: $447.00
- Cost Basis: $68.00 - $4.47 = $63.53
Starting a New Wheel: Selling a Covered Call on PINS
- PINS's Current Price: $68.73
- Capital Needed: $6873.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $69
- Premium you'll receive: $500.00
- Cost Basis: $68.73 - $5.00 = $63.73
SBUX
Monday Open: $117.75
Friday Close: $118.73
5-day change: 0.83%
Starting a New Wheel: Selling a Cash-Secured Put on SBUX
- SBUX's Current Price: $118.73
- Capital Needed: $11800.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $118
- Premium you'll receive: $291.00
- Cost Basis: $118.00 - $2.91 = $115.09
Starting a New Wheel: Selling a Covered Call on SBUX
- SBUX's Current Price: $118.73
- Capital Needed: $11873.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $119
- Premium you'll receive: $345.00
- Cost Basis: $118.73 - $3.45 = $115.28
Ask Steve š
Let's see what some of our members asked this week. Here are the top questions we received:
Matthew
Q: Sold my first CSP and curious behind the call behaviour - statiscally, do CSP/CCs tend to get called away on the last day of expiry or typically earlier (excluding the case for swiping dividends).
A: Excellent question! Your CSP will typically get assigned on the day of expiration if your put option is ITM. It is rare to get assigned early, though it may still happen.
Khan
Q: Hi, I recently started a wheel with a CSP on PINS last week (7/30 expiration date, 80.00 strike price). I noticed that I'm done -131%. Is this normal? I didn't think I would lose more than I put in. Not a super big deal but I was wondering if I should sell to close this put now or wait till expiration.
A: Great question! Right now, we would wait until expiration to see where the shares are. We would not recommend buying back the option as your put value would have increased due to the drop in price of PINS. Keep in mind that PINS is a highly volatile stock with wild price swings. If you want to be more on the conservative side, we would recommend using the Wheel Strategy on dividend-paying stocks, like AAPL and MSFT.
Adam
Q: Iām currently maxing out my 401K employer match and working toward maxing out 2 Roth IRAs for my wife and I. Is this a good strategy before looking into covered calls?
A: That's a wonderful idea. We can tell that you are disciplined and have a plan mapped out for you to reach financial freedom. If you don't have at least $10K in a single Roth IRA, you can consider opening a cash account since there is no limit on how much you can deposit. We ask that members have at least $10K to start the Wheel Strategy since it is a more capital intensive strategy and requires purchasing 100 shares of a high quality stock. In the meantime, we recommend investing in a couple of fundamentally sound companies or ETFs to grow your long-term wealth.
Niraj
Q: I understand the importance of tracking your trades. Is there or has Call to Leap created a template tracker? If not, any best practices to setting one up?
A: Below is a spreadsheet we hope you will find helpful :). This allows you to track your wheel trades and see your profit. We personally use this document to track our trades as well.
https://docs.google.com/spreadsheets/d/1aDCR2iWZSeB0AT90EEN4LuxGzRheoqzo5EZ_VSZqyAs/edit#gid=0
Sreeraam
Q1: I am curious How can I make 8000$ per month that I see you mentioned in your videos. Which strategy would you recommend to get it ?
A1: Wonderful question! Let's break down the math! Before we start, it is important to mention that these are our goals for our members and that we are subject to the market conditions which fluctuate. With that in mind, let's break it down! Let's look at the wheel strategy and a current example we can use to illustrate the possibility. Currently, AAPL is trading at $144.48. Selling 1 cash secured put contract at a strike of $144 on August 13th (32 days which is roughly a month) will give you $440 in premium. Your investment is $14,400 because you need to be able to cover 100 shares of AAPL. If you received $440 in premium, that is a 3.05% return (in one month) on your $14,400 investment. Now, if you had sold 10 contracts of cash secured puts at the same strike and expiration date, you would multiply $440 by 10 = $4,400. You would make that much in premium for that month. The same concept applies to covered call contracts and you can even make capital gains. Essentially, the wheel is scalable. As you grow your wealth, you can trade more contracts which will then bring you more premium per month. Different stocks give different premiums as well. It is a patient, consistent, disciplined game.
Q2: How can I identify where smart money has invested or pulled back and how much they invested?
A2: In your brokerage account, when looking at an individual stock, you can see data on "% held by institutions" we can currently see that Visa has 93.04% held by institutions. We believe that this is one of the indicators that smart money likes this stock. We can also speculate and see that strong upwards trends in stocks can mean that smart money likes these stocks and will continue to put more money into it. Smart money has lots of money and therefore when they sell off or pull out of a stock, there is a significant decrease in the stock's price.
Q3: How can I identify dividend paying stocks ?
A3: Yahoo finance is a great resource to see if a stock pays dividends or not. You can look up a company with a ticker symbol and see if they pay dividends in the "Forward dividend & yield" section. You can also see the "Ex-Dividend date" there too.
Joanne
Q: Hi Call to Leap Team! I opened my brokerage account & I wanted to get your opinion on what strategy to pursue next. I'm not sure on how to allocate my portfolio. I did see the 30/30/30/10 allocation as a recommendation. I was thinking since I have enough funds to purchase 100 shares of AAPL, I can start selling covered calls to generate income to purchase more shares.
A: Congratulations on getting started! We are super excited to be a part of your financial freedom journey! Wonderful job on being disciplined and consistent to save enough to start a wheel. This is a huge accomplishment in itself. You're off to a great start, Joanne. You can consider starting the wheel with a cash-secured put or a covered call on AAPL to receive premium to be able to purchase strong stocks/ETFs. We recommend to continue contributing (whatever you're comfortable with) to your brokerage account each month too. The goal is to contribute a little each month, receive premium on our wheels and reinvest it into strong stocks/ETFs to build and compound our wealth over time. As for your portfolio allocation, you are free to do whatever you'd like with your portfolio. As you build your wealth, you can consider our 30/30/30/10 allocation.
Laura
Q: I was scrolling through the PINS option chain on RobinHood today and noticed that since Monday because the stock price has dropped about $6, for the 8/6 strike date, there is actually a $40 covered call with a $31.85 premium - how is that possible? Doesn't that mean I'm guaranteed $3,185 in premium, as long as I'm ok with taking the risk of holding on to PINS if it were to drop below $40 (currently at $71.71), am I missing something here?
A: Awesome querstion! When selling a covered call, the more you sell a covered call ITM (below the underlying stock price) the more premium you can make. However, remember that someone can exercise their contract and if that happens, you'll be obligated to sell your shares at the $40 strike price even though the underlying stock price may be $70+. When selling covered calls we typically recommend selling it 1-3 strikes OTM (above the underlying stock price).
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Technical Analysis šš
MSFT:
MSFT is still on it's upward trend and looks like it's nearing the top of it's channel. There is a chance that the stock may cool down in the next couple of days. But who knows, anything can happen and the stock can even break out and start a new trend, especially with earnings coming up.
AMD:
AMD is still in it's neutral range and is currently going through a short-term pullback. Remember that this stock is highly volatile and does not pay a dividend. Yes, the premiums are high, but the risk is higher since the stock can pull back quickly. Please trade with caution.
PINS:
Very similar to many tech stocks this week, PINS is also experiencing a short-term pullback. If you are in this stock, make sure to buckle your seatbelts.
AAPL:
AAPL, like MSFT, is coming near the top of it's upward trending channel. I also think this stock may take a little breather in the short-term. Depending on the company's earnings coming up in the next couple of days, there may be a chance the stock may break out.
WM:
It looks like WM is now trending above it's previous resistance line and even made another all-time high this week. Woohoo!
SBUX:
SBUX came out it's short-term pullback and is back on track on top of it's short-term trendline. This stock also made another all-time high this week.
EL:
EL also made another all-time high this week and is in a strong upward trend. Are you investing in this stock?
ADBE:
ADBE has been trending neutrally for a good year and finally broke out of it's channel. Hopefully stocks like AMD and PINS will have good news in the next couple days and follow ADBE's trend.
Earnings š
That's right folks. Another round of earnings are coming up towards the end of July. If you are trading the Wheel Strategy, we recommend that you keep these earnings dates in mind. You'll start to notice that your premiums are going to get slightly bigger since the extrinsic portion of your options will be inflated from the higher IV.
If you want to reduce your risk, then you can consider not starting any new wheels right now and just sit on the sidelines. You can wait until your favorite companies deliver their quarterly reports to see which ones Wall Street rewards.
Remember that at Call to Leap, we only invest and trade in stocks that have strong fundamentals and that we understand the companies we invest in. We never invest based off of hype because this is the quickest way to lose money and to damage your wealth mindset. We want to see the stock market as a vehicle to grow wealth, not a gambling ticket.
I expect that many companies that we are investing and trading in are going to deliver wonderful reports in the next 30 days. Let's keep an eye out to see how the stock prices react.
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Stay patient and disciplined. Great things are coming our way!
-Steve and the Call to Leap Team
The following article is strictly the opinion of the author and is to not be considered financial/investment advice. Call to Leap LLC and the author of this article does not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article.