Jul 23, 20226 min
Updated: Jul 30, 2022
Hey Wealth Builders!
Wow! We had a wonderful rally this week and broke through some resistance lines. But before we celebrate, I want to make sure we are cautious as we approach earnings season.
Technical Analysis 📈
SPY
SPY broke above its short-term yellow resistance. However, observe that we stopped perfectly on the downward trending magenta resistance. Hopefully we get some good news from corporate earnings to break through. If not, market sentiment may continue to be sour and I can see ourselves rejecting the resistance line again.
I would feel more comfortable with the markets if I can see the S&P500 not only break above the magenta resistance, but also the $415 horizontal level.
QQQ
We see that QQQ finally broke through its resistance line this week as many tech stocks are rallying into earnings. I would like to see if we can break above the $317 levels.
DIA
Similar to SPY, DIA kissed its resistance line on Friday. For this ETF, I would like to see it climb above its $332 level.
AAPL
AAPL has been unstoppable over the last few weeks as it broke above its main $150 level. This stock is one of the strong reasons why the markets as a whole has been moving upwards.
AMD
AMD is another stock that has been trending lower over the past half year. Please keep a close eye on this one to see if it finally breaks out with earnings over the horizon.
Earnings
Keep an eye out for earnings for the next couple of weeks! I am hoping that we may be at some sort of market bottom as I'm observing that many stocks have trended sideways or even upwards for the past 30 days. If we get overall positive earnings/guidance, better CPI data, and a dovish response from the Fed, I anticipate the markets to move back higher.
From what I wrote before a couple of weeks ago, I predict that the markets will turn around sometime in Q3 or Q4. Many companies make the most revenue towards the end of the year and money managers tend to reallocate their portfolios to prepare themselves and their clients for the new year.
Stay patient, everyone!
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Q1. Hi! I recently learned about margin and I’m aware of its accelerated risk and reward. My question is: do you pay interest only on margin used, or on all the margin put into your account?
For example, say I’m given $100,000 in margin to use from my brokerage. Then say I only use $20,000 of that margin. Do I pay interest on the whole $100,000? Or just the $20,000 I used?
A1. You will only be charged on the margin you use. In this case, you would be charged for the $20,000 you use.
Q2. I sent in a question a couple weeks ago about where to find delta and theta when looking at an options spread. On all of Steve’s examples, he shows his options spread and has the Greeks listed for each option that’s available.
A2. You can find these values by scrolling to the left (on the call side) and to the right (on the put side) on the TD Ameritrade's Thinkorswim Web Platform. If they are not available, try clicking the settings to see if they are being displayed or not. You can also try clicking on the specific contract itself to see if your brokerage displays the Greeks.
Q4. The other question, if we have a covered call and it looks like the stock might hit the price, is it possible to sell or pay someone to take that covered call? Just curious if that's a thing, but can't seem to find an answer online. Thank you again!
A4. Yes, it is possible to buy back your call option contract. If the underlying stock price is higher than your covered call strike price, your contract will most likely cost more to buy back. This will result in you giving your premium back plus out of pocket costs to close your contract.
Q5. I sold cc on aapl around 10-15 delta and it’s currently at strike price bc it rallied cc expires next week and in august does it make sense to btc and roll out further or should I wait until exp date?
A5. I typically would let the shares go and restart the wheel again with a cash-secured put. However, if you don't mind holding onto the shares for a little bit longer and using it as collateral to generate more premium, then yes, you can buy back and roll out your call. You can buy back your call option (BTC) and resell it (STO) into a further date (around 3-4 weeks out) at the same (or around the same) strike price. If you do this, you may get a higher premium than what you paid to close the contract. Just be aware that you would most likely get a larger premium as you will be selling a call option right before an earnings announcement. IV is higher and there may be potential risk of a volatile stock move.
📌Submit Your Questions 🙋♂️🙋♀️
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Make sure to check it out on the bottom of your "Dashboard" and follow the instructions on how to sign up. Coming from a teacher's perspective, I believe it's important to engage in conversations with people who are also seeking to reach financial freedom.
Remember that we are a community of wealth builders at all different levels, so be positive, kind, and helpful to others, so we can help each other get to financial freedom much faster.
📌Steve's Recommendations 💡
I'm going to pin this here since many people ask similar questions each week about why I'm hesitant with starting new positions. Until I see any trend changes or updates with the news, we will pivot our strategies. In the meantime...
I don't recommend starting any new wheel positions (selling new covered calls or cash-secured puts) until there is a trend reversal and positive market sentiment.
Through it may not matter in a long-term lens, I don't recommend buying any shares or ETFs for the long-term at the moment.
Continue to buy to close past covered call positions once they shrink down to around 50-80% of their values, and roll out to a further date to collect more premium. This is a great environment to sell short-term options as IV is high due to all the fear. I favor 30 to 45 day expirations. It's a boring and repetitive process, but it's like collecting "free money" or another "dividend" while 95% of other retail investors are panicking.
If you have more than 100 shares of long-term positions, you can consider selling 30 to 45 day covered calls at around a delta 0.10 to bring in cash.
Continue to deposit money into your account.
Continue to set up bear call spreads.
Let your capital stay as cash so we can have plenty of ammo when the bull market returns. And trust me, when it does, it will be glorious since we will be prepared.
Stay positive and patient. I know it's easier said than done, but keep in mind that you have knowledge on how to still generate income during a downward market. This is something that more than 95% of retail investors don't know how to do!
Have a wonderful weekend! 🙂
-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.