Jul 24, 202115 min
Hey Everyone!
Hurray! The markets marched forward again this week and your accounts should all be pretty green! Let's take a look at what happened!
Here's SPY:
Here's QQQ:
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 shares were called away last week, you can consider restarting your wheel. For beginners, you can consider starting again by selling a cash-secured put, around 1-3 strikes OTM. For advanced traders, you can restart your Wheels by selling covered calls, around 1-3 strikes OTM.
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.
Let the trend be your friend: Since markets are moving higher, you can consider selling shorter dated options, around 2-3 weeks out, and around 1-3 strikes OTM. We would only recommend doing this if you've been spinning your Wheels for a while and if you have the risk tolerance for a potential market pullback.
Here are some trade recommendations and see what fits your personal risk-tolerance:
MSFT
Monday Open: $278.93
Friday Close: $289.67
5-day change: 3.84%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT
- MSFT's Current Price: $289.67
- Capital Needed: $28750.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $287.5
- Premium you'll receive: $728.00
- Cost Basis: $287.50 - $7.28 = $280.22
Starting a New Wheel: Selling a Covered Call on MSFT
- MSFT's Current Price: $289.67
- Capital Needed: $28967.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $290
- Premium you'll receive: $608.00
- Cost Basis: $289.67 - $6.08 = $283.59
AAPL
Monday Open: $143.75
Friday Close: $148.56
5-day change: 3.34%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL
- AAPL's Current Price: $148.56
- Capital Needed: $14800.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $148
- Premium you'll receive: $372.00
- Cost Basis: $148.00 - $3.72 = $144.28
Starting a New Wheel: Selling a Covered Call on AAPL
- AAPL's Current Price: $148.56
- Capital Needed: $14856.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $149
- Premium you'll receive: $425.00
- Cost Basis: $148.56 - $4.25 = $144.31
AMD
Monday Open: $84.99
Friday Close: $92.15
5-day change: 8.42%
Starting a New Wheel: Selling a Cash-Secured Put on AMD
- AMD's Current Price: $92.15
- Capital Needed: $9200.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $92
- Premium you'll receive: $385.00
- Cost Basis: $92.00 - $3.85 = $88.15
Starting a New Wheel: Selling a Covered Call on AMD
- AMD's Current Price: $92.15
- Capital Needed: $9215.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $92.5
- Premium you'll receive: $380.00
- Cost Basis: $92.15 - $3.80 = $88.35
NKE
Monday Open: $158.15
Friday Close: $166.36
5-day change: 5.19%
Starting a New Wheel: Selling a Cash-Secured Put on NKE
- NKE's Current Price: $166.36
- Capital Needed: $16500.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $165
- Premium you'll receive: $238.00
- Cost Basis: $165.00 - $2.38 = $162.62
Starting a New Wheel: Selling a Covered Call on NKE
- NKE's Current Price: $166.36
- Capital Needed: $16636.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $167.5
- Premium you'll receive: $246.00
- Cost Basis: $166.36 - $2.46 = $163.90
PINS
Monday Open: $67.32
Friday Close: $76.91
5-day change: 14.24%
Starting a New Wheel: Selling a Cash-Secured Put on PINS
- PINS's Current Price: $76.91
- Capital Needed: $7650.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $76.5
- Premium you'll receive: $585.00
- Cost Basis: $76.50 - $5.85 = $70.65
Starting a New Wheel: Selling a Covered Call on PINS
- PINS's Current Price: $76.91
- Capital Needed: $7691.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $77
- Premium you'll receive: $558.00
- Cost Basis: $76.91 - $5.58 = $71.33
SBUX
Monday Open: $117.54
Friday Close: $125.97
5-day change: 7.17%
Starting a New Wheel: Selling a Cash-Secured Put on SBUX
- SBUX's Current Price: $125.97
- Capital Needed: $12500.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $125
- Premium you'll receive: $283.00
- Cost Basis: $125.00 - $2.83 = $122.17
Starting a New Wheel: Selling a Covered Call on SBUX
- SBUX's Current Price: $125.97
- Capital Needed: $12597.00
- Sell at the Expiration Date: 2021-08-13
- Select the Strike: $126
- Premium you'll receive: $333.00
- Cost Basis: $125.97 - $3.33 = $122.64
Ask Steve 💭
Let's see what some of our members asked this week. Whew! There were quite a few! Here are the top questions we received:
Viv
Q: Hi Steve. On 6/28 I sold AAPL 07/30/2021 135.00 C for 3.81; AAPL is now trading around 145+.I looked into buying back and rolling out. To close my CC, ask is 12.10 and rolling out to 8/20 145.00 is 5.50; a $660 DR. Should I just wait to get assigned (my cost basis is 132.63) or do i have other options ? :)
A: We would recommend letting your shares get called away. Remember, you already made a profit from this trade by collecting a premium and from the capital gains from your covered call. When your contract expires, you can then consider restarting the Wheel again.
Tyler
Q:1. I am currently doing a CSP on AMD that I made this Monday. (Strike $90.50, $400 premium, exp. 8/6). I'm using the Robinhood app and I'm not sure how to read the information given to me. Mainly, what does "Equity", "Current Price", and any other pieces of information I should know, mean? Because at the time of writing this email, the price of AMD is $85.86. (Screenshots below.) I want to know what I should be focusing on in terms of the statistics Robinhood provides to have a better idea of how my contracts are doing.
Because you sold a cash secured put, your put value increased due to the drop in price of your stock. Options are derivatives of underlying stocks. Calls typically rise when the underlying stock rises. Puts typically rise when the underlying stock falls. You don't need to worry too much about what the values are right now are since they are designed more for the option buyer. To keep things simple, just know that you are obligated to purchase 100 shares of AMD for $90.50 if AMD is below $90.50 on the day of expiration. If you are assigned the shares, you can then convert the trade to a covered call trade.
2. Furthermore, I noticed in your weekly positions article, Khan mentioned PINS is down -131%. You advised her not to buy back the shares as 'the put value would have increased due to the drop in price of PINS'. Does this mean that the premiums I will receive by expiration date will be higher? I do understand that the lower the drop in price, the more it will cost to buy back the contract, but does this logic work both ways in regards to the premiums? Or will it still be $400 regardless of the change in price by exp date?
Thanks!
Because the stock went down, the put for that stock is going to be more expensive. It's like when a car gets into an accident, the insurance for the car will also get more expensive.
Since you already sold your CSP for $400, that $400 is for you to keep forever. The $400 is the amount agreed when you sold the contract. However, if you want to back out of your agreement, you will need to purchase the put option back for a higher price than the price you initially sold it for.
Since you are a beginner, we recommend to let time pass and to let the shares get assigned to you on expiration. From there, we would convert the trade into a covered call.
Arinda
Q: Hi! I finally opened my brokerage account & I want some guidance on what strategy to pursue next. I have $15K on my brokerage account, and my initial understanding was that I could use that amount in its entirety to begin selling covered calls. After watching your video on the 30/30/30/10 allocation though, I'm not too sure about that approach since using almost all if not all of 15K for covered calls does not fit the 30/30/30/10 framework. How should I start investing with this amount?
A: There are two options you can consider doing. You can first start by investing for the long-term by purchasing 1-5 shares of 1-5 your favorite companies. As your risk tolerance and comfort level builds over time in the markets and you continuously deposit more capital into your account, you can then consider starting a Wheel as your second step.
If you are already comfortable with the markets and have more patience with stocks' day-to-day volatility, you can consider starting a Wheel right now. As you are selling options and collecting premium, you can then use that capital to purchase more long-term holding shares. You will essentially be starting off with a large portion of your portfolio with a Wheel and slowly reallocating it into the 30/30/30/10 ratio.
Daisy
Q: Hi Steve! I sold a CC on Apple and it got called away on Friday, July 16. So I no longer have those shares. What do I need to do if I want to place another CC on Apple on the Monday July 19? Or do I need to wait until next Monday July 26 after I buy 100 shares of Apple this week? Also, when the stocks are bullish, is it better to sell CC or CSP?
A: Congrats with completing one cycle of the Wheel! You most likely made money from your collected premium and capital gain. If your shares were called away, you can then restart your Wheel on the next day the market is open. You can consider restarting your Wheel by selling a CSP around 1-3 strike OTM. If you are more bullish, you can consider starting another covered call trade by purchasing 100 shares and selling a call against your shares around 1-3 strikes OTM.
Juliette
Q: Hi Call 2 Leap Team!
I just finished watching your allocation video.
This is what my cash account portfolio looks like:
(I also have a maxed out Roth IRA and 401k)
I sold my first CSP on AAPL.
I have 5 shares AAPL
I have 5 shares SQ
5 shares V, 5 shares WM, 5 shares SPY.
You give a list of growth and dividend paying stocks, how should I prioritize between buying more shares of the stocks I own and adding a new stock to my portfolio.
Should I concentrate on a few stock ( like I currently own) or goal is to have a broader selection of all listed.
Thanks again!
Juliette
A: This is a great start and it seems that you are on the right track. As you progress forward, we would recommend focusing on growing more of your dividend paying stocks/ETFs, such as V, MSFT, and SBUX. If you are a beginner, we would have around 7-10 different stocks. The more advanced and comfortable you become, you can then consider investing in more companies. Keep in mind that the more companies you have, the more time you will be required to keep track of their earnings reports. Remember that the mindset is that you are acting like a boss (investor) with employees (stocks) that are working and bringing in money for you and you want to be responsible in managing them.
Jonathan
Q: I understand when you get your shares bought away from you, you get a premium and a chance of capital gains as well, but my question is do you also get the money you first used to buy the 100 shares back as well, or when the shares are bought away from you, do you only get the premium and capital gains?
A: Great question! Yes, if your shares are called away at a higher price, you will get back the initial capital you used to purchase the 100 shares.
Yoon
Q: I feel like aapl price will go down after earnings? So I feel like I’m under pressure to sell a call near earnings date or just sell entire stocks at 150 above or just hold to avoid paying taxes.
A: We hear you and we know this can be frustrating. We always want to make the best decision and make the most out of our trades. However, there is no way to know which way the stock will go. Each decision you make will have its pros and cons. The goal of the wheel strategy is to consistently make at least a 2.5%+ return on your money every month. Any profit is great profit! You can consider holding onto the stocks for a long-term investment or you can consider starting the wheel with a covered call. Completely up to you!
Manuel
Q: Hey guys, I've been reading the Team's positions on several different stocks and I'm interested in starting a new wheel with a CSP on Citigroup (C). Would this be a recommended stock for you since it is considered fundamentally strong and pays a dividend? Any feedback is appreciated.
A: Great question! If you look at the 5 year chart for Citigroup and even the max chart, we can see that the 5 year chart trends neutral. In December of 2016 the stock was $60 and today it is $66. That is not a long-term stock we would want to hold. When looking at the max chart, we see that its highest was $569 in August 2000. To us, it doesn't look like wall street favors this stock and therefore we wouldn't want to do the wheel on this stock or even hold it for long-term. When we do the wheel, we do them on stocks we wouldn't mind holding long-term.
Let's look at MSFT. In December of 2016 MSFT was also around $60. Today it is $278. See the difference? Although it's cheaper to start the wheel on Citigroup, you're essentially getting what you paid for. We currently recommend SBUX, AAPL, AMD, NKE, PINS and MSFT for the wheel. However, you are free to do whatever you like with your portfolio.
Norbert
Q: Over last 2 months, almost all covered calls expired by assigning of my shares, since the share prices on APPL,MSFT,NKE are moving up, quite significantly. This means, that I always have to buy another round of 100's of shares at much higher price, which means necessity of more capital. Premiums generated from these covered calls are lower than the increase in stock price over 4 weeks. So I am using all premiums plus extra capital to purchase new shares again. Since I wanted to follow your advice and invest premiums generated from selling covered calls into investing into long term stocks, is there anything I am missing in the strategy I am pursuing?
A: Awesome question! We've been in a bullish market and therefore, stock prices have increased, increasing the cost to start wheels. The power of the wheel strategy can be seen in neutral markets. For example, in a neutral market, stock XYZ can be fluctuate between $99-$101 for 3 months. At the end of these 3 months just holding onto these stocks will only give you +$100 if you bought at $100 and the price moves to $101. $100 in 3 months doesn't sound attractive right?
We utilize the wheel strategy to consistently make premium, which can be anywhere from $250-$800 a month, per contract, depending on the stock you're utilizing and the current IV. Let's say we instead trade the wheel for those 3 months and make $400 per contract, per month. We have now made $1,200 in 3 months compared to the $100 you would've made just holding onto those stocks in a neutral market. We can't predict which way the market will go, but we can capitalize on consistently getting premium every month. Does this make sense?
You can consider utilizing no more than 10% of your portfolio to purchase a LEAPs option in addition to your covered calls to make more money during bull markets. In addition, because we have a 30/30/30/10 allocation, our long-term holds also go up during bull markets.
Arinda
Q1: Hi CalltoLeap team! Can you clarify for me whether implementing the wheel strategy means that you have to have enough money to sell a cashed secure put and a covered call simultaneously? or is implementing a wheel strategy mean that you sell a cashed secured put first, letting it reach expiration date 2-4 weeks later, and then sell a covered call after a month of selling a cash secured put?
A1: Wonderful question! So when trading the wheel, we typically recommend first selling cash secured puts until the shares are assigned to you. Once shares are assigned to you, you can then sell a covered call against your shares. We sell covered calls until our shares are called away. At this point, we've finished our wheel cycle and can consider starting a new one. Although we recommend starting with a CSP first, you are free to start the wheel however you'd like. You can consider starting with a CC instead and sell them until your shares get called away and then sell another CC to start the wheel again. When you start the wheel with a CSP, you are required to have the funds to buy 100 shares as collateral for the strike price you choose. For example, stock XYZ is trading at $100. If you select a CSP strike at $99, you would need to have $9,900 to start that wheel with a CSP. A CC and CSP are two separate trades with separate contracts. Therefore you can just sell a CSP by itself or a CC by itself and you would only need to have either: Funds for the CSP as collateral for the 100 shares OR 100 shares for the CC. As you gain more experience and your portfolio grows, you can consider doing both.
Q2: Hello! I know the norm for those of us on CalltoLeap platform is to invest every Monday morning, whether that is in the form of LEAPS, covered calls, etc. If for example I have $15K to invest right now, and I decide to sell a covered call this upcoming Monday where my investment will be anywhere between $10K-$15K, and set an expiration date for 2-4 weeks from now, does this mean I can no longer sell covered calls or cash secured puts until the expiration date of that $10-15K investment?
A2: Correct. Your brokerage holds that money as collateral when you sell a cash secured put until the expiration date. As for selling a covered call, you are required to have those 100 shares.
Augustine
Q: I’m getting ready to start my first wheel. You recommend Pinterest and AMD but they don’t give dividends. I understand the company growth and product so I know it will continue to grow but still doesn’t go by Calltoleaps teaching. Wondering why? Thanks
A: How exciting!!! We made unique exceptions for these stocks. We like PINS's business model and we are bullish on AMD for the long-term. When we start wheels, we like to do them on stocks we would not mind owning for the long-term. It is important to mention that because these stocks do not offer dividends, they are more volatile and therefore can experience bigger drops during market corrections. The higher volatility increases premiums on these stocks, but they are subject to the significant price fluctuations. If you want less volatility for your wheels, you can consider AAPL, NKE and MSFT. They are more expensive to start, but the volatility is lower.
Submit Your Questions 🙋♂️🙋♀️
Have any other questions? Before asking me and my team, feel free to check out our Level 1 FAQ. This FAQ is located on the Level 1 page. You might find what you're looking for. 😊
If you do have questions, make sure to ask them on our Dashboard, rather than asking us via email. We also encourage you to watch all of the core video content and some of the past archived videos, read past Membership Positions, and take all the quizzes before sending us your questions.
Technical Analysis 📈📉
Here are a couple of stocks that performed well over the last couple of weeks. Take a look:
MSFT
AAPL
AMD
PINS
FB
COST
EL
PYPL
SQ
I'm predicting that companies like AMD and PINS are about to break out of their neutral range soon and make some new all-time-highs. Remember that Wall Street will often times push a stock higher and then take a little breather from putting their money into these companies. Once a consolidation period is over, the stock will rise and be in favor by Wall Street all over again. I see this time after time as you can observe this pattern with FB, COST, and AAPL. This is why I encourage you to stay patient and have a diversified 30/30/30/10 portfolio.
Earnings 📑
Buckle your seatbelts, everyone! Many large companies are going to be reporting earnings in the upcoming weeks!
Here are a couple to watch out for:
Tuesday, July 27
MSFT
AAPL
AMD
V
WM
GOOGL
Wednesday, July 28
FB
Thursday, July 29
PINS
MA
AMZN
Tuesday is going to be an interesting day...
Join Our Discord 💬
Investing, trading, and building wealth was a lonely journey for me. This is why my team and I created a Discord group for you and the other members to shares ideas and support one another. You don't have to go through it alone as we're all here to help. 😉
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.
What's the Goal?
As you are building your portfolio, I want to remind you that your ultimate goal is to reach financial freedom, so you become work-optional. Though some of you beginners say that you're "only" making around $300-$2,000 per month with premiums, remember that this will become scalable over time! Do not get discouraged because you think you have a "small" account. You want to keep depositing more money into your brokerage account, so you can keep spinning your Wheels, grow the value of your long-term holds, and collect dividends. Yes, this is what many financially free people do as they are able to take out capital from their accounts each month while still letting their accounts continuously compound larger over time.
Remember to always stay focused and keep your goal destination in mind!
For those of you who have been diligently investing and depositing more capital into your accounts, my team and I are super proud of you! Keep up the good work and you will see your acorn turn into an oak tree in no time!
Stay positive and patient! You got this!
-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.