Jul 3, 20213 min
Hey Advanced Traders!
Now that we are seeing upward movement in the markets, let's talk about some advanced trading ideas. Take out your notebooks because this will be an interesting lesson.
When In Doubt, Split It Out
Often times when we are in a bullish market, everyone thinks they are a genius. And when this happens, the voice of greed starts to whisper into their ears. I typically will hear people complain because they had their shares get called away and that they "only" made $2000 that month. No really, I hear people complain because they weren't able to "time" the markets right and sell their strikes exactly on the price that their stocks land on for their expiration dates. Remember that we can never time the markets perfectly and that the point of the Wheel Strategy is to generate consistent and predictable income each month. If you sell a covered call and get your shares called away, it should be a celebration for you! Not only did you collect a premium, you most likely collected capital gains and maybe even some dividends. It is important that we have this shift in mindset and not be so greedy with making the most amount of money possible.
1. Selling Further OTM Covered Calls: If you want to reduce the probability of getting your shares called away, you can always consider selling a little further OTM, perhaps around 2-3 strikes out. You can even look at the delta and determine what the probability of your underlying stock hitting the strike price is by expiration.
2. Staggering: If you want to split out your trades, why not stagger your expiration dates and strike prices. For example, you can sell some covered calls 3 weeks out and some other covered calls 4 weeks out. You can also choose different strike prices where some strikes are a little further OTM.
3. Covered Call + Cash Secured Put: You can even consider selling one OTM covered call contract and one OTM cash-secured put.
4. Covered Call + LEAPS: If you think your underlying stock may continue to rise, why not consider purchasing a LEAPS option on the side? If the stock surpasses your strike price for your covered call, your LEAPS option will continue to gain in value.
5. Covered Call + Extra Shares: Or if you think purchasing LEAPS options are too risky, why not purchase an extra 25-50 shares on the side. So for example, you can buy 150 shares of AAPL and sell a covered call. If AAPL rises above your strike price, your extra 50 shares will continue to rise and you can sell them for a profit.
The more experienced you become as a trader, you will start to realize that you have many options with your trades (pun intended 😋). Always see what works for you and what fits your risk tolerance.
AAPL LEAPS
Recognizing patterns, AAPL likes to run up in price before their earnings report. I also notice a triangular wedge where it looks like the stock is primed to break out of. Lastly, given the current market conditions, it looks like large institutions are shrugging off their monetary fears and putting their money back into the stock market. Because of these factors, I am considering purchasing some LEAPS options to pair with my AAPL Wheels.
Investing in AAPL LEAPS
Expiration Date: June 16, 2023
Delta: 0.81
Strike: $100
Premium: $4625
Trading AAPL LEAPS
Expiration Date: June 16, 2023
Delta: 0.70
Strike: $120
Premium: $3290
You can consider holding your LEAPS options for investing until a couple days before AAPL releases their earnings report later this month. You can even consider holding it for around 3-4 months, or until the earnings in October. I know, I know. This kind of breaks our rule, but I'm noticing that Wall Street has been rewarding companies that deliver great quarterly reports, rather than selling their shares. Again, it's up to you if you want to consider doing this and base it off of your risk tolerance.
As for your LEAPS options for trading, you can make your target profit around $200-300, or when AAPL moves up around $3-5.
Like always, please make sure to keep in mind of the Level 2 guidelines when purchasing LEAPS. I know they are extremely lucrative in a bull market and some of you have been making around $1000-$2000 in a week, but I want to make sure you are safe with your portfolio and not purchase 30 LEAPS options all at once. This is a sure way for you to lose a lot of money if the underlying stock goes the opposite direction.
Be disciplined! Happy trading and investing! 😄
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.