🔒Membership Positions - October 2, 2022

Hey Wealth Builders!

The S&P500 had another sell-off this week, sending us to a new low for the 2022 year, as fears that a recession won’t stop the Federal Reserve from raising interest rates.

What The Heck Is Happening? 📈

SPY

This week, SPY broke it's $361 support. I am still anticipating for a sudden bear market rally in the next couple of weeks. Many corporate earnings are coming up in October, and this may serve as a catalyst to spark the markets. However, if we continue to sell off even more, I believe we may retest the $322 support, which acted as resistance and support back in 2020.

AAPL

A lot of news surrounded Apple this week that served as a catalyst for the tech company's sell-off.

Looking at the technicals, we may have just landed right on a major support level of $138. If we bounce off, this may lead the S&P500 to follow along. If we break support, we may retest Apple's previous low of $129.

📌What Now? 🤷‍♂️🤷‍♀️

Right now, I prefer to do the following given these market conditions:

Ask Steve 💭

Let's see what some of our members asked this week. Here are the top questions we received:

Q1: When Steven say pick stocks that are part of the S&P 500 and DOW 30, does that mean that we are looking for stocks that are listed on 1 or the other, or do the stocks have to be listed with both exchanges for it to be considered a good fundamental stock?

A1: Either/or. In this given environment, I prefer to stick with companies that are in the DOW30, which are also already listed in the S&P500. DOW30 companies typically have a longer history of success in the markets and are viewed as more steady components in relation to newer tech, growth stocks. For example, you can compare AAPL to PLTR.

Q2. are there any concerns you would have with doing a buy-write on 100 shares of SPY and convert it into a wheel? It is down on the 5mth and 1 yr but up on the 5 year. My thoughts are it has x 3 expiration dates every week so I think I could trade lower deltas but, make up for it because of the increased frequency of how many times a week you could trade SPY. Please provide feedback

A2: As long as you don’t mind letting your SPY shares get called away, you can sell covered calls against them. Though SPY has a deeper and wider option chain, keep in mind that when you sell daily or weekly calls, the extrinsic value is relatively small since the majority of the contract value already has been decayed by theta. This means that you may not get a high enough premium for selling the option. Also, through a more advanced lens, the gamma is a little higher with shorter-dated call options and the value of these contracts can move wildly. I personally would prefer to sell call options with around a 30 day expiration since the extrinsic value is high enough for premium collection, while theta is on the inflection point of rapid theta decay. Though 30 day expiration dates are further in time, keep in mind that you can always close out your positions early. You don’t necessarily have to wait until expiration to close your contracts. I often like to buy back my contracts when I receive 50-80% of profit and roll out the contracts into a further expiration date.

Q3: Hello, I'm confused by the chart of the OTM in covered calls is complete opposite from OTM of cash secured puts. Thanks!

A3: Yes, this concept can definitely confusing. When we are talking about covered calls, OTM means any strike ABOVE. When talking about cash-secured puts, OTM means any strike BELOW.

For example, if we want to sell an OTM covered call on a stock that is trading at $100, we sell it at $101. The more OTM we sell a covered call, the less chances are that the underlying stock will reach that price by expiration (a strike of $120 is less likely to be called away than a strike of $101 at expiration). The further OTM you go, the less premium you receive, but will capture more of the gains if the stock moves up.

If we want to sell an OTM cash-secured put on a stock that is trading at $100, we can sell it at $99. The more OTM we sell the cash-secured put, the less likely it is for us to be assigned shares at expiration (a strike of $85 is less likely to be assigned than a strike of $99). Going more OTM gives us less premium, but if we are assigned further OTM, we are being assigned 100 shares at a lower price.

Q4: Should we start the wheel yet? I really want to start.

A3: You can do what you feel comfortable with. However, I don't recommend it at this time since you may incur an unrealized loss if you were to be assigned your shares from selling a cash-secured put. Right now, I like setting up bear call spreads to generate income. If setting up bear call spreads is a little scary, you can consider trading them in a paper trading account, like Think or Swim's web platform. Hang in there!

Earnings 📰

NKE

In a nutshell:

• First quarter reported revenues were $12 billion, up 4 percent compared to the prior year.

• NIKE Direct sales were $5.1 billion, up 8 percent on a reported basis.

• NIKE Brand Digital sales increased 16 percent on a reported basis.

• Nike saw revenues decline 16% year-over-year in Greater China, the company’s highest margin region. Nike executives believe inventory issues will be normalized by the end of its current fiscal quarter.

• Nike reported inventories increasing 44% year-over-year and up 65% in North America. The news may have spooked investors into selling off shares.

• NIKE continues to have a strong track record of investing to fuel growth and consistently increasing returns to shareholders, including 20 consecutive years of increasing dividend payouts. In the first quarter, NIKE returned approximately $1.5 billion to shareholders, including dividends of $480 million, up 11 percent from the prior year.

Though I still like NKE due to the company's increasing dividend payout and annual revenue, the company is also being sold off along with the broad S&P500. I would not add anymore shares until we get more positive data from the Federal Reserve and the market sentiment shifts positive.

📌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.

Again, I expect more volatility from now until the beginning of November. Let's see how the markets react once we get to October earnings and the mid-term elections. Stay calm and patient. 🙏

-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.