Membership Positions - November 22, 2020

Hey Investors and Traders!

The markets stayed level for the most part this past week, staying net flat(ish) going back a month. This means that your open positions in the wheel either expired worthless or you got assigned very CLOSE to the strike price.

Since we're looking at stocks relevant to the positions we've been posting, MSFT, AMD, and AAPL are rangebound, like last week. Movements that are too drastic can cause a little bit of concern in opening a sell position of an option but remember, we're doing COVERED options selling (calls covered by 100 shares, puts covered by cash in account).

Here are some notable price movements in the stocks we're trading:

Advanced Micro Devices AMD

Microsoft MSFT

Apple AAPL

Trade of the Week:

About a month ago, wheel positions were opened on the put side at $81.50 strike for AMD, $215 strike for MSFT, and $115 strike for AAPL. This means the cash-secured puts you sold expired worthless for AMD and AAPL, and you got assigned to buy MSFT for $215 per share while pocketing the premium! It should be readily apparent that when you don't own the shares, you're essentially profiting off of the stock moving away from your put's strike price (or not moving by much away from the strike price). It's like the wheel strategy plays ping pong with itself, leaving a trail of returns along the way.

I want to point out that when we restart the AAPL cash-secured put, it's going to be at the same strike price as the cash-secured put from a month ago. This reflects the relative rangebound motion of AAPL in the past month, (about a month ago AAPL is roughly the SAME PRICE, off by a little less than half a percent) and we made money off of the fact that AAPL didn't move much. This highlights one of the mechanics of the wheel: its ability to protect against temporary stagnant growth or profit off of them. Remember this!

With the assignment from MSFT, remember to "close the gap" by selling a covered call against the shares you were assigned at the strike price of the put you sold ($215 strike, 4 weeks out). With the puts which have expired worthless, you're now able to restart the cash secured put position below (or start a new one for MSFT if you're new and didn't get the chance to sell the put position from a month ago):

Starting a New Wheel: Selling a Cash-Secured Put on MSFT

- MSFT's Current Price: $210.39

- Capital needed: $21,000.00

- Sell at the Expiration Date: 2020-12-18

- Select the Strike: $210.00

- Premium you'll receive: $572.50

- Cost basis: $210.00 - $5.72 = $204.28

Starting a New Wheel: Selling a Cash-Secured Put on AAPL

- AAPL's Current Price: $117.34

- Capital needed: $11,500.00

- Sell at the Expiration Date: 2020-12-18

- Select the Strike: $115.00

- Premium you'll receive: $275.50

- Cost basis: $115.00 - $2.75 = $112.25

Starting a New Wheel: Selling a Cash-Secured Put on AMD

- AMD's Current Price: $84.64

- Capital needed: $8,250.00

- Sell at the Expiration Date: 2020-12-18

- Select the Strike: $82.50

- Premium you'll receive: $294.00

- Cost basis: $82.50 - $2.94 = $79.56

As always, a more conservative position would be to sell these puts one strike price lower. Understand the tradeoffs (less premium but less risk of assignment) before picking one strike price out.

What's Happening

TSLA, an automaker whose worth is looking as if it's going to break half a TRILLION dollars, is about to be inducted into the S&P 500. This is big news; the S&P 500 is a sort of hall of fame of companies to consider keeping an eye on. It's not a bad thing to hold stock in a growth company moving at the rate TSLA is but please remember to do the necessary homework (fundamentals) before deciding to include it in your portfolio. When you have rules around what you want to invest in, it's always important to stick to those rules no matter how tempting it is to jump in. If TSLA proves itself with strong fundamentals (remember, this means upward trending top-line revenue, consistently beating earnings guidance, and 3-month/1-year/5-year stock growth), it may be time to open positions.

As far as options go, if you look at TSLA options going one month out the ticks are wider and the implied volatility is significantly higher than MSFT, AAPL, or AMD. TSLA's swings are massive (just this past week, TSLA jumped roughly 20%), which contributes to the high level of implied volatility you see priced into its options:

We tend to take more strategic positions rather than high-volatility, high-risk positions, even if it means missing out on potential monstrous growth. We don't want to risk a massive loss. You may choose to invest in TSLA but do so at your own risk.

Final Thoughts:

Covid cases look to be on the rise in some parts of the U.S., which could impact certain sectors in the economy the way the first wave did months ago. With geopolitical tumultuousness affecting the markets, remember to find harbor in fundamentally strong companies. We can't stress this enough and we won't stop doing so. 🙏 This is ultimately the fortress or armor of your portfolio.

We hope you'll have a safe and pleasant holiday this upcoming week. Take care of yourselves, your loved ones, and your investments!

- 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.