Oct 9, 20217 min
Hey Everyone!
Looks like the major indices had an attempt to rally. Let's take a look at what happened:
Here's SPY:
Here's QQQ:
Here's DIA:
Technical Analysis 📈📉
SPY:
The good news for SPY is that we broke the yellow resistance line on Thursday. If you want to slowly buy some shares, you can. If you want to be more conservative, you can wait to see if an uptrend forms with higher highs and higher lows. It is still possible that we trend sideways since there are still monetary concerns.
QQQ:
As for QQQ, we have not broken that resistance line yet. However, it is coming towards the end of the wedge. This lands near the end of October, when major companies give their quarterly reports.
DIA:
DIA also broke its yellow support line. Similar to SPY, you can add some shares here or be conservative and wait for a confirmed uptrend.
SBUX:
SBUX is still in an overall downtrend. However, we do see that they bounced off of their 200 EMA this week.
PYPL:
You can see a similar pattern in PYPL.
NKE:
There has been interesting action in NKE, which also bounced off of its 200 EMA and filled in a portion of its gap back in June.
MSFT:
There seems to be a lot of conviction in MSFT as it had a strong bounce off of its green support line and $280 short-term low. The stock is currently only around $10 off of its ATH!
FB:
With negative news coming out from a whistleblower from FB, it is still possible that the stock continues to sell-off in the short-term. I want to see if the 200 EMA holds and if the stock breaks above the orange resistance line. Though many big tech companies, like FB and GOOGL, often get punished due to news like privacy, corporate monetary decisions, etc., they often bounce back in the long run. It is important to stay patient with these stocks.
EL:
I actually bought a couple more shares of EL this week as I see the trend for this stock still holds strong. The stock hit it's overall support line, an RSI of around 25, and its 200 EMA.
COST:
I'm still being a little more patient with COST to see where it wants to go. It's still technically in a short-term downtrend, but I can't exactly make out where the potential resistance line is. Let's wait a couple more days to see if there are any trend changes.
AAPL:
I still wouldn't start a new Wheel on AAPL just yet since it appears that it's still in a downward trend. If the stock doesn't break out of its resistance line, it may gravitate towards its 200 EMA and green support line as it approaches to earnings.
AMD:
I readjusted my resistance line for AMD as more data comes up. You can see that AMD is holding up pretty well above its yellow support line.
V:
I readjusted my support line for V. I'm keeping an eye out to see if it makes a higher high above $231 in the next couple of days.
What Do We Do Now?
Similar to what I wrote last week, 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. Since we are still in an environment with negative sentiment and Congress trying to figure out what to do with the debt ceiling and President Biden's infrastructure bill, I would not recommend starting any new Wheels until the markets regain some footing and we see the downward trend stop. Once we see upward retracement and confidence from the larger institutions, we can then follow suit and slowly add onto our positions and start our new Wheels again. As for now, I would recommend being patient, collect your dividends, Wheel premiums (and premiums from your spreads if you are part of the Premium Membership). Yes, you can leave your monthly deposits, dividends, and premiums as cash in your account. Remember that cash is also a position and sometimes the best thing to do in times of uncertainty is to sit and be patient.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Jonathan
Q: When I sell a put option and it expires as predicted OTM, do I have to do anything? Do I have to "close" or "exit" it or is this done automatically?
A: Your brokerage should resolve the contract and the collateral that was held should go back into your account. Give it some time and it should happen automatically. This is if you sold a put and it expired OTM, meaning that the underlying stock price did not drop below your strike price. “OTM” for calls and puts are different. OTM for a call is a strike price above the underlying stock price. OTM for a put is a strike price below the underlying stock price.
Ali
Q: Hi, I bought a cash-secured put on SBUX back when it was trading for $119. Now it's down to $111-112. With a premium of ~$200, I'm still going to be down a steep $500-600. My expiration date is coming up this Friday 10/8 - I'm not sure if I should wait to let it expire or cut my losses now. If I choose to do the later, how would I go about that. I use e-trade. Looking for advice. Trying to keep a long-term mindset, but also a bit worried about this play.
A: We believe you meant "SOLD" a cash-secured put. We do NOT "BUY" puts here at Call to Leap. We understand the terminology can be confusing :).
We understand the anxiety and uncertainty that comes with trading the wheel. We do have a long-term mindset which is why we do the wheel on stocks we wouldn't mind owning for the long-term anyways. Consider letting your option go to expiration. There is a high likelihood that you will be assigned the shares on expiration. Not to worry, you can consider selling a covered call at the price you were assigned the shares at. This is "spinning the wheel" and every time we collect premium, we lower our cost basis. In this situation, we just have to stay patient and consider selling covered calls at the price we were assigned at until the underlying stock price rises again and our shares get called away. Because our strike price will most likely be further OTM, we would receive less premium when selling a covered call after we get assigned. Hang in there!
Yoon
Q: What is ur thought on pins? Will they retrace ? Negative line is scaring me what do I do keep selling calls?
A: We can't guarantee anything in the stock market so therefore we can't say that it will 100% retrace, but we like the company's business model and we are bullish on PINS for the long-term. You can consider continuing to sell covered calls until the stock retraces and your shares get called away. In these situations we just have to be patient.
Rachel
Q: I am working through level 1. I have 10k in savings as well as a separate emergency fund. I am confused about how much I'm supposed to invest in stock vs what I'm supposed to be selling in covered calls. Also confused about how to actually do this on Fidelity's website. How/where can I get help?
A: What you invest in is completely up to you. If you've never traded the wheel, you can consider saving up more money to do your first wheel on a "more stable" stock like AAPL. This would have less volatility than an AMD wheel. With $10k, you can consider slowly investing by buying a few fundamentally strong stocks like MSFT, V and AAPL. You can also consider buying ETFs that track the S&P 500 like SPY and VOO. Once you have enough for an AAPL wheel, you can consider starting one. We recommend reinvesting your premiums into fundamentally strong stocks/ETFs that track the S&P500 to exponentially grow your wealth over time. Personally, we use TD Ameritrade. In our level 1, we have many videos on different platforms that we use to show our members how to trade the wheel. Consider exploring your brokerage account to find out the specifics of the platform.
Sean
Q: Hi, let's say I have 150 shares of Apple. 50 of those shares are part of a long term position that I would prefer not to lose. I do a covered call on Robinhood. How do I make sure I use the 100 shares I'm willing to lose? Thank you!
A: You can consider switching from FIFO to LIFO. (First in first out to Last in first out). This way, your brokerage account sells the stocks you recently bought instead of the ones you initially bought. Trading the wheel on long-term holds can be tricky. Consider having another brokerage platform if you want to do the wheel on companies you want to hold for the long-term too.
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 Dashboard. 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.
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.
I do expect some high volatility in the next couple of days. This means that there will be days where the markets rally and days where the markets drop quickly. Stay calm and patient everyone! We will get through this pullback together!
-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.