Feb 11, 20235 min
Hi Wealth Builders! 👋
The big surprise this week was the incredible jobs report that showed unexpected strength which prompted the Fed to re-emphasize its commitment to fighting inflation. This is ironic given the continous news of the big tech layoffs we've seen since the end of last year. To me, this means we may see more rate increases in the near future (though potentially at smaller increments).
Heat Map📈
Here's this week's heat map:
How's the S&P500 doing?📊
SPY
Overall this week, markets remained sideways (slightly dipped) in the longer trend of our recent S&P500 rally. Note that we're right up at our resistance line from last May, so I'll be looking to see whether we break above this line which would further boost investor confidence in the recent momentum. If it does, I will add another 5-10 shares to my long-term holds.
Again, I have been slowly adding to my long-term positions from all the cash I collected from our trades in 2022. I do this so I don't put all my eggs in one basket by betting on one single point in the market. By SLOWLY scaling my positions, I can invest conservatively and when I see a bullish opportunity in the market. As always, remember to pay yourselves first and make cash monthly contributions to your brokerage account so you have ammo when you need it.
Steve's Trades
I'm still selling covered calls against some of my long-term holds. I'm choosing around delta 0.05-0.10 with expiration dates in early to mid March.
If you're going to do the same, make sure you choose a strike you are comfortable with. Remember that the markets will rally again sooner or later and you want to be prepared for that.
SBUX Cash-Secured Puts:
If you had cash-secured puts from a couple of weeks ago and see that your option contracts have decayed around 50% or more, feel free to close your positions.
This week I am still selling Cash Secured Puts against SBUX.
Expiration Date: March 3, 2023
Step 1: Have $10,200 of cash as collateral
Step 2: Sell 1 $102 strike put option (delta -0.21) for $76.
Credit/premium received: $76
Again, make sure you are bullish on SBUX in the long run and are willing to buy 100 shares for $102. As always, please tweak the numbers around based on your risk tolerance.
GOOGL Bear Call Spread:
Because I'm seeing a resistance line around $108 for GOOGL, I'm entering the lower call option at that price (I think it will be challenging for GOOGL to break above this line before March 24 - they would need to rally 14.3% over the next 6 weeks!)
Expiration Date: March 24, 2023
Step 1: Buy 1 $135 strike call option (delta 0.02) for $12
Step 2: Sell 1 $108 strike call option (delta 0.16) for $93.
Step 3: Set a buy-stop order of 100 shares at $107
Credit/premium received: $93 - $12 = $81
Again, make sure you are willing to buy 100 shares of GOOGL to cover your exposure in case of a rally. As always, please tweak the numbers around based on your risk tolerance.
Ask Steve 🤔
Q: Is it bad to start covered calls and cash-secured puts on days that aren't Monday?
A: You can sell an option whenever you'd like. However, because options expire on Fridays, we prefer to sell options on Mondays.
Q: I plan to start a Cash-Secured Put for AMD since I have enough capital, is that still a viable option?
A: If this is your first wheel, we recommend starting with a more stable stock than AMD. Perhaps one like NKE, SBUX or AAPL. AMD is very volatile.
Q: My first CC was with my 100 shares of AAPL, my cost basis was 144.88 and I sold it at a strike price of 152.5 at a 470 Premium (one strike OTM at the time). I had enough capital to attempt a CSP AMZN for a strike price of 100 (close to at the money at the time). Your thoughts?
A: Great job on collecting premium! If you don't mind owning AMZN for the long-term, you can consider selling a CSP on it. We only use the Wheel Strategy on stocks we want to own for the long-term.
Q: What should I keep in mind in the event I need to buyback or anything else to be aware of?
A: We typically don't buy back our contracts once we've sold them. Whenever we sell a covered call, we choose a strike that we are happy to sell our shares at. The goal is to consistently collect premiums each month to lower the cost basis of our shares or to use the capital to buy more long-term holds.
Q: More so wanting advice if the stock of my CC were to jump significantly in value, such as going from 152.5 all the way up to 160 or so.
A: If you sold a CC at the 152.5 strike and the stock rises to 160, the value of your covered call contract will be more expensive to buy back. Therefore, we recommend letting your shares go at your strike price and keeping the premium. However, some investors may want to buy back and roll out their contracts if they want to keep their shares. We have a video on this in our archive section.
📌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.
Have a wonderful weekend! It looks like we are slowly going higher! 😀
-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.