Dec 3, 20225 min
Hey Wealth Builders!
We had a wonderful week with some positive news from Jerome Powell saying that the Fed may "slow down" from the three-quarter percentage point rate hikes starting in December. Because of this, we had a broad-based rally on Wednesday that gave the markets a strong finish for November.
Technicals 📈
Here's this week's heat map:
SPY
As we've discussed over the past several weeks, we've been trying to see if this rally since October can last and if SPY can finally break the green resistance line. If we do, I am purchasing 5 more shares next week. If we don't, I will continue to either hold the majority of my position in cash or slowly scale my long-term holds on other individual companies that are trending higher.
QQQ
Tech companies in the QQQ is still struggling to rally at the same magnitude as DIA. I will not be adding any shares of QQQ yet.
DIA
DOW30 components are being favored right now and the DIA is officially back in a bull market! I added 5 shares of DIA to my long-term holds this week.
SBUX
Comparing SBUX to the rest of the larger indices, this stock is progressing upwards quickly too. I added another 5 shares to my long-term holds and closed my cash-secured put positions to lock in my profits.
WM
WM is nearing its all-time-highs again, showing that there is institutional conviction on this stock. I added another 5 shares to my long-term holds this week.
V
I also added another 5 shares of V to my long-term holds and will add another round of shares if I can see the stock break and stay above the $217 level, which was the previous August 2022 high.
Overall, notice that I am adding shares to companies that are being favored by Wall Street and "letting the trend be my friend." I am focusing on stocks that are progressively making higher highs and higher lows and breaking resistance lines.
However, notice that I am slowly adding shares to my positions. Since there is still uncertainty ahead and we don't know if the Federal Reserve is actually going to slow down interest rate hikes until it actually happens, I am still leaning towards the cautious side.
In the end, invest what you are comfortable with based on your risk tolerance is. I prefer to focus more on DOW30 dividend-paying companies at the moment as these are the companies that have done very well in my portfolio in the past many years.
Steve's Trades
AAPL Cash-Secured Put
Just like with me finally adding more shares to my long-term positions, I am also going to slowly scale in some new wheels. Looking at the charts, it looks like AAPL is consolidating sideways and is a good candidate for selling a CSP as our initial step. I am, however, going to be more on the conservative side and choose a further OTM strike to start in case the markets decide to take a downward turn.
Expiration Date: January 6, 2023
Step 1: Have $13,500 as collateral
Step 2: Sell a $135 strike (delta 0.17) for $129 of premium
Credit received: $129 per contract
Keep in mind that your intent of selling this CSP is to want to buy 100 shares of the stock at the strike price. If you are assigned the shares on expiration, you can then convert your trade into a covered call.
AAPL Bear Call Spread:
At the same time, you can also consider setting up a bear call spread on AAPL in case the stock doesn't really go anywhere for the next few days.
It seems that the underlying is having some trouble getting above the $157 level.
Expiration Date: January 6, 2023
Step 1: Buy 1 $175 strike call option (delta 0.02) for $12.
Step 2: Sell 1 $160 strike call option (delta 0.17) for $104.
Step 3: Set up a buy stop order for 100 shares for $159 to cover
Credit received: $104 - $12 = $92 per spread
If the stock stays below the second leg's strike price from now until expiration, you'll be able to let your option contracts expire worthless. You can always close your positions early if your contracts decay around 50-80% of its value.
If the stock rallies towards the second leg's strike price, you'll purchase 100 shares to cover yourself and convert your bear call spread into a covered call trade.
And of course, make sure to always check to see if you are comfortable with these trades and if it fits your risk tolerance.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Q1: I sold a CSP on SBUX for $110 and the stock went up. The CSP is now worth $50. Should I close it?
A: Yes. You can consider closing your position by buying to close (BTC) and locking in your profits. Congrats!
Q2: If I bought a LEAPS and I've been selling calls like a Poor Man's Covered Call, do I want to cover myself if the stock rallies to my call's strike?
A: Yes. You are contractually obligated to deliver the 100 shares to the other party if they decide to exercise the option contract. If you do not cover yourself, your call option's value will increase in price compared to the value you initially sold it for, meaning that there will be a realized loss on the day of expiration.
📌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.
Keep up the great work! A lot of you have been patient and disciplined this whole year by selling decay contracts to others and increasing your cash reserves with your dividends, premiums, and monthly contributions. If we resume the bull market again, this is where the fun will really happen as we can now slowly use our ammunition.
Hang tight and stay optimistic!
-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.