Oct 2, 20218 min
Hey Everyone!
We had another volatile week in the markets. Let's take a look at what happened.
Here's SPY:
Here's QQQ:
Here's DIA:
Technical Analysis 📈📉
SPY:
As mentioned last week, SPY has broken it's main orange support line. As more data is given to us, we can see that there seems to be a short-term yellow resistance line.
QQQ:
Looking at QQQ, I'm seeing that there is still some room for this ETF to fall over the next couple of days as it approaches its support line. Once it does, I want to see how the algorithms react and if the line holds the price.
DIA:
DIA is still in a downtrend. It's possible that the ETF tests the $335 or $332 support levels in the next couple of weeks.
AAPL:
Similar to what we saw in QQQ, AAPL seems to be trending closer to its support line.
GOOGL:
Just this week, GOOGL followed the major indices and broke its support line too.
AMD:
AMD is still trending sideways and nearing the end of its wedge. Lets observe where it goes in the next couple of days.
MA:
Financials have been doing well over the past couple of days with MA finally breaking out of its downward trend last week. Though we don't have enough data points, the yellow line is a potential support line for the stock. However, if market sentiment continues to be negative, it's possible that the stock can follow the major indices and sell off too. Please invest responsibly and with caution.
V:
Here is V following the same pattern as MA.
MSFT:
MSFT had a big sell-off this week. However, it seemed to have a nice bounce back on Friday when it hit its support line. I am curious to see if it can break out of the short-term yellow resistance line next week.
SQ:
Here's SQ with it's downward trend.
PYPL:
And lastly, we have PYPL.
What's Going On In The Markets?
There have been many concerns about the US and their decision to raise their debt ceiling, which is the limit on the Department of the Treasury’s ability to borrow money to pay the debt it already owes. Some investors worry that if the debt ceiling is not increased, the United States will eventually default on its obligations and have impactful consequences, such as significantly increasing interest rates and halting some payment benefits like social security.
As a strategy to keep borrowing costs low for consumers and help companies survive during these difficult times, the Federal Reserve has been buying $120 billion in bonds each month for the past year and a half. However, many investors have been waiting for the Federal Reserve to remove the economy’s "training wheels" by “tapering,” or trimming, the amount of bonds it buys each month.
With all these concerns and the massive rise in the stock market for the past year, we've been observing Wall Street take profits by selling off some of their stocks until these economic uncertainties are over.
Also, keep in mind that October is the month where many large companies will deliver their Q3 reports. This means that there is a greater chance of market volatility in conjunction with all the news that is going on.
What Do We Do Now?
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 in a pullback and in an environment with negative sentiment, I would not recommend buying any shares or 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:
Iris
Q: How can I get started? I signed up for this training since 9/6 and still feel super lost. Can someone please help me? Thanks!
A: Right now, we recommend starting off with Level 1 content. You can watch the entire core video series, take the quizzes, and read around 4-8 past membership positions, so you can get a general sense of how we write our investment and trading ideas. You can also watch some of the past Ask Steve videos to see what other people's questions are. Finally, we encourage our members to join the Discord group so you can talk to the other people in our wealth building community.
Juliette
Q: Hi! My call option expires worthless last Friday.@165 call bought the shares @162
What suggested strike price and expiration date should is use.
Same strike? 4 weeks away? Which is barely nothing….
Thank you
A: In regards to your question, unfortunately, when the underlying stock price drops, the premiums for far OTM covered calls become smaller. The more OTM you sell a covered call, the less premium you receive. During these situations, we just have to be patient and wait for the underlying stock price to retrace. You can consider selling a covered call at $162 or a strike higher, 5-6 weeks out.
John
Q: Hello! I have a question about the relationship between IV and earnings date. Does IV change according to when you sell relative to the earnings date? Or does IV change according to the expiration date you choose relative to the earnings date? It seems that AAPL's earnings will be on Oct 27. How should that information affect the way you start your wheel? Wait till after earnings? Let your first CSP contract expire before earnings? After earnings?
A: Great question! IV is consistently changing in regards to market conditions, earnings, specific stocks, etc. IV typically is highest before earnings are released and lowest, after earnings are released. We're playing the long-term game, so we aren't worried about the little fluctuations of price in the short-term. We try not to time the market when it comes to the wheel strategy. We do however, identify if we are in a bullish, neutral or bearish market to select our expiration dates. The wheel strategy is very passive. Premiums are typically higher before earnings because of higher IV.
If you're a beginner, you can consider selecting an expiration date before earnings are released. Or if you want to have a more conservative approach, you can wait after earnings to see how the company did and if you want to start a Wheel for that stock.
Jordon
Q: About a month ago, I started my first wheel and sold a CSP contract for SBUX with a strike price of $116 that expires on 9/24. I collected my premium and my contract was called away leaving me with 100 shares of SBUX. As I read our membership post for 9/25, you mentioned the premium for a CC would be $283. As I opened the Options Chain in Thinkorswim, for SBUX with an expiration of 10/22,the bid for a strike price of $115 shows as $1.58, or $158. Am I selecting the wrong options?
A: Congratulations! So you were assigned the shares at $116. In regards to your question, premium prices are always changing due to the fluctuations of the underlying stock price and the changes in volatility. The reason the premium is "smaller" than what was mentioned in our position is because the underlying stock price dropped. When you sell covered calls more OTM (when talking about Covered calls, this is a strike "higher" than the underlying stock price), you receive less premium. So at the time, a strike of $115 would've given $283 premium at the time it was written, but because the underlying stock price dropped, that $115 strike would now give a smaller premium, which looks like $158.
Considering you were assigned at $116, we don't recommend selecting the $115 strike price as this would result in a $100 loss if/when your shares are called away because you would be selling your shares for $1 less than what you bought them for. Instead, consider selling a covered call at what you were assigned at or $1 higher. Yes, when stocks drop, we receive less premium as our strikes are further OTM. In this scenario, we just have to be patient and let the stock retrace up again.
If you would like to sell a covered call, select the stock's option chain for the expiration date you want, look at the strike you want, look on the LEFT side and consider selecting the premium for the "bid" option for that strike price. Once you've selected it, double check you are SELLING a CALL at the strike and expiration you want and then execute the trade. Consider looking at our tutorial videos for a more thorough explanation/walk through on how to execute these trades.
Mel
Q: Hello CTL team, the videos mentioned avoiding selling options that expire during ex-dividend week. What is the earliest a buyer can close the contract? Is it limited to the expiration week?
Thank you
A: Correct. It is important to know when the ex-dividend dates are so that you aren’t called away early and miss out on the dividends. Technically, the person on the other side of your contract can execute whenever they want. Statistically, most contracts go to expiration.
Brianna
Q: I'm curious what your portfolio allocation recommendation would be between The Wheel strategy, LEAPs, spreads and dividend stocks.
A: We typically recommend the 30/30/30/10 allocation. We like 30% of our portfolio to be in the wheel, 30% in stable, dividend paying stocks/ETFs, 30% in growth stocks and 10% in LEAPs/Cash.
We have a video under our level 1 "fundamentals" which goes into depth with this allocation. Click "see past videos" under fundamentals in our level 1 section and you should be able to find it.
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.
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.
Stay Calm and Patient 🙏
If you're new to investing and trading, then yes, these past couple of days have been scary, especially if your eyes have been glued to your accounts. Like what I always remind you of, we are always long-term investors first and we must understand that market pullbacks and corrections are normal.
Oh what's this? This is a chart of the S&P500 over the past 5 years. You can see that with every market pullback and correction, there is always strong retracement that followed 100% of the time.
Be calm. Be patient. You got this! We are in this 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.