Mar 21, 20217 min
Updated: May 28, 2021
Hey Everyone!
It looks like we had a quiet week and many of the stocks we are investing and trading in are going into consolidation. This means that prices will probably bounce around neutral. Looking at the IV for some of the stocks, there might be some wild price swings in the coming weeks ahead. Make sure to buckle up.
Here's a snapshot of how the overall markets did this week:
Trade of the Week:
If you've been trading the Wheel Strategy, you most likely got assigned your 100 shares from your CSP or your covered calls expired worthless.
Just like last week, here are two options you can consider taking:
Option 1: To restart your Wheels again on Monday, you can consider selling around 4-6 weeks out at the same strike price that you sold last month. For example, if you had a Wheel for PINS and sold a covered call at the $76 strike, you can resell your next call at the $76 strike again. This way, you will still be collecting premium and lowering your cost basis as you patiently wait for your shares to retrace back up.
Option 2: Because you initially sold covered calls against your shares to lower your cost basis, you can also consider selling 1-2 strikes below your initial sold strike price. For example, if you purchased 100 shares of PINS for $76 and sold a call for $400, your new cost basis is $76 - $4.00 = $72.00. Instead of selling at the $76 strike, you can consider selling at the $75 or $74 strike. You will be obligated to sell your shares for a lower price than you initially purchased them for and higher than your new cost basis. However, you will be able to collect more premium since you are selling a little closer to the ATM strike.
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.
If you're a beginner, we recommend you starting off with selling cash-secured puts around 1-3 strikes OTM. This is typically a conservative starting point when starting the Wheel Strategy. However, if you're more bullish about the markets, 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.
Implied volatility, or IV, has increased for most premiums for these past couple of weeks. Why? IV tends to rise when there is uncertainty or fear in the markets. Retail investors and large institutions typically like to trade a high volume of options during this time where they like to place bets on if stocks will go up or down in a short amount of time.
Here are some trade recommendations and see what fits your personal risk-tolerance:
MSFT:
Monday Open:$234.96
Friday Close:$230.35
Change: -1.96%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT
- MSFT's Current Price: $230.72
- Capital needed: $23,000.00
- Sell at the Expiration Date: 2021-04-16
- Select the Strike: $230.00
- Premium you'll receive: $617.50
- Cost basis: $230.00 - $6.18 = $223.82
Starting a New Wheel: Selling a Covered Call on MSFT
- MSFT's Current Price: $230.72
- Capital needed: $23,072.00
- Sell at the Expiration Date: 2021-04-16
- Select the Strike: $235.00
- Premium you'll receive: $402.50
- Cost basis: $230.72 - $4.03 = $226.69
AMD:
Monday Open:$81.91
Friday Close:$79.06
Change: -3.48%
Starting a New Wheel: Selling a Cash-Secured Put on AMD
- AMD's Current Price: $78.12
- Capital needed: $7,750.00
- Sell at the Expiration Date: 2021-04-16
- Select the Strike: $77.50
- Premium you'll receive: $273.50
- Cost basis: $77.50 - $2.74 = $74.77
Starting a New Wheel: Selling a Covered Call on AMD
- AMD's Current Price: $78.12
- Capital needed: $7,812.00
- Sell at the Expiration Date: 2021-04-16
- Select the Strike: $80.00
- Premium you'll receive: $312.50
- Cost basis: $78.12 - $3.12 = $75.00
AAPL:
Monday Open:$121.41
Friday Close:$119.99
Change: -1.17%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL
- AAPL's Current Price: $120.53
- Capital needed: $12,000.00
- Sell at the Expiration Date: 2021-04-16
- Select the Strike: $120.00
- Premium you'll receive: $435.00
- Cost basis: $120.00 - $4.35 = $115.65
Starting a New Wheel: Selling a Covered Call on AAPL
- AAPL's Current Price: $120.53
- Capital needed: $12,053.00
- Sell at the Expiration Date: 2021-04-16
- Select the Strike: $121.25
- Premium you'll receive: $375.00
- Cost basis: $120.53 - $3.75 = $116.78
NKE:
Monday Open:$140.70
Friday Close:$137.49
Change: -2.28%
Starting a New Wheel: Selling a Cash-Secured Put on NKE
- NKE's Current Price: $143.17
- Capital needed: $14,000.00
- Sell at the Expiration Date: 2021-04-16
- Select the Strike: $140.00
- Premium you'll receive: $517.50
- Cost basis: $140.00 - $5.18 = $134.82
Starting a New Wheel: Selling a Covered Call on NKE
- NKE's Current Price: $143.17
- Capital needed: $14,317.00
- Sell at the Expiration Date: 2021-04-16
- Select the Strike: $145.00
- Premium you'll receive: $137.00
- Cost basis: $143.17 - $1.37 = $141.80
PINS:
Monday Open:$72.30
Friday Close:$73.01
Change: 0.98%
Starting a New Wheel: Selling a Cash-Secured Put on PINS
- PINS's Current Price: $69.39
- Capital needed: $6,500.00
- Sell at the Expiration Date: 2021-04-16
- Select the Strike: $65.00
- Premium you'll receive: $167.50
- Cost basis: $65.00 - $1.68 = $63.33
Starting a New Wheel: Selling a Covered Call on PINS
- PINS's Current Price: $69.39
- Capital needed: $6,939.00
- Sell at the Expiration Date: 2021-04-16
- Select the Strike: $70.00
- Premium you'll receive: $627.50
- Cost basis: $69.39 - $6.28 = $63.12
Earnings
On Thursday, Nike NKE reported higher third-quarter profits. The company's top line revenue for the quarter ending on Feb. 28, 2021, was $10.36 billion from $10.1 billion a year earlier. This is a 3% increase year over year, which mostly attributed to the 51% Chinese revenue increase being a primary driver. The company notes that while digital sales increased 59%, North America was a relative weakness for the quarter. Why? There was a 10% revenue drop, not because of insufficient sales, but because of supply chain problems preventing enough merchandise from arriving out of Nike's factories in China.
Nike’s direct-to-consumer business brought in $4 billion, which was a 20% increase year over year. There was also a 59% increase in online sales as many consumers bought more shoes and athletic outfits, even if they were stuck at home. Nike said they made $1 billion in online sales in North America for the first time.
Nike said that their e-commerce business is still on track to account for at least 50% of sales in the coming years. Nike has reduced their dependency on third-party partners and have been investing more in digital venues, including its popular SNKRS app, to reach younger consumers online.
At Call to Leap, we believe that Nike NKE is still great long-term investment and/or trade. If you like the company and believe in their fundamentals, you can consider investing in a couple of shares. Like always, remember to see if the stock fits your risk-tolerance and to slowly scale in, rather than buying a whole bunch of shares all at once. Looking at the stock's historical price movement, NKE is a more stable stock, with the company being a part of the DOW30 and paying dividends.
Success is Intentional
An NBA basketball player doesn't become good at shooting and dribbling accidentally. An Olympic runner doesn't become fast accidentally. Likewise, an investor doesn't become good at investing accidentally. Success is intentional.
When we invest, we aren't just doing it for a couple of weeks or months. We invest and build wealth for the long-term, which can span for more than 10 years. Yes, everyone feels like a genius when the markets go up, and we tend to hear people say "I told you so." There are often smirks and grins and people flashing their accounts at each other saying, "Look at how much money I made!" However, when a correction or pullback happens, that's when we get to see people's true character. We get a little glimpse of their nature. We get to see if their portfolios were actually strong and resilient, or if they were just lucky because of a couple wins. We get to see if these investors panic and sell, or see if they stay calm and controlled.
Many of you who have been investing just for a couple of weeks or months have been asking us if the stock market is going to crash to zero.
The answer is no.
Though many of us are so focused on the day-to-day gyrations of the markets, we often neglect to focus on what's most important: the long-term.
The stock market has undergone so many crazy events, like many wars, monetary issues, and political drama, and guess what, the stock market has always stood its ground.
Stay patient everyone. You will be fine in the long term.
Discord Launched! 💬
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.
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.
Level 1 FAQ 🙋♂️🙋♀️
Have 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 in our Level 1 or Level 2 page, rather than asking us via email.
Stay positive, everyone! 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.