Mar 24, 20236 min
Hi Wealth Builders! 👋
We had another volatile week, especially with the Federal Reserve increasing interest rates by another 25 bps. We're in a tricky time since the Fed wants to still increase rates to tamper inflation, yet they don't want to raise interest rates too much too fast as it will cause a larger domino effect with increasing the risk of a recession. They are also vigilant with making sure future bank failures will not occur.
Heat Map📈
Here's this week's heat map:
How's The S&P500 Doing?📊
SPY
QQQ
Comparing the S&P500 to the NASDAQ, we can see that tech shares in the QQQ made a new recent high. Because of this, I'm planning on adding around 5 shares of QQQ to my portfolio next week if I continue to see this upward momentum. Notice that I am slowly adding shares to my position and not going all in. I'm also adding positions when stocks or ETFs move higher, rather than me "chasing" shares as they progress lower. I prefer to always have cash on the side, just so I have more options later.
It seems like even with the Federal Reserve increasing interest rates, large institutions are still optimistic as we see many tech shares rise. This could be due to the Federal Reserve signaling that they may start pausing interest rate hikes sometime soon, especially with what happened with the banking fiasco.
There is still uncertainty around us and I'm still focusing more on DOW30 dividend-paying stocks like V, AAPL, and MSFT, and keeping cash on the side.
Steve's Trades
This week, AAPL finally surpassed some of my covered call strike prices of $160. Because of this, I purchased 300 shares and left my covered calls in tact. I still want my $160 strike covered call positions as a way to hedge my position in case AAPL drops. If AAPL does drop, I will sell a couple more covered calls at around the $165 or $170 strikes to collect some premium. I'll also set up some bear call spreads to pair with my covered calls.
If you want to try selling some Jade Lizards this week, here are some strikes and expirations to consider:
1. AAPL Cash-Secured Puts:
It looks like AAPL has some resistance around the $145 level. Because of this, I'm planning on selling a CSP at the $145 strike price.
Expiration Date: May 5, 2023
Step 1: Have $14,500 of cash as collateral
Step 2: Sell 1 $145 strike put option (delta -0.18) for $195
Credit/premium received: $195
By placing this trade, we are willing to buy 100 shares at the strike price of $145 by expiration. If the shares are assigned to us, we can start earning premium from selling covered calls on this new position.
2. AAPL Bear Call Spread:
I also want to pair my CSP with a bear call spread because it seems like AAPL is heading near its green resistance line and another $175 horizontal resistance.
Expiration Date: May 5, 2023
Step 1: Buy 1 $195 strike call option (delta 0.01) for $9
Step 2: Sell 1 $175 strike call option (delta 0.19) for $113
Step 3: Set a buy-stop order of 100 shares at $174
Credit/premium received: $113 - $9 = $104
If you decide to put on both of these trades, remember that the goal is to have AAPL stay between $145 and $175 and to let theta decay away from all the option contracts. And yes, you can always close your positions early when you have your contracts decay to around 50%+ to lock in your gains.
Ask Steve 🤔
Q: Hey Steve! I have deposited a total of $136,450 into my TD Ameritrade account. The account value for all my accounts is currently at around $134,865. My total P/L Open for all positions is at about -$50. It seems I'm about $1,500 under but can't figure why. I looked at my transaction history and don't see anything that would be bringing it down. Do you have an idea of what may account for this deficit?
A: This is a little strange. Did you sell any positions for a loss or have long-term holds that have an unrealized loss? Or do you still have some covered call positions open? Sometimes the value of the option contract can fluctuate your portfolio value, especially when there is still many days until expiration. Lastly, did you ever sell a call option against your shares that were below your cost basis?
Q: Why aren't you selling covered calls on growth stocks right now? They have larger premiums.
A: It's true that many covered call premiums are much higher compared to dividend-paying stocks right now. However, whenever there are high premiums, it's because the underlying stock's implied volatility is also high. I would prefer to choose more stable stocks at the moment due to the uncertainty that is still around us. If you choose to sell covered calls on highly volatile stocks, be prepared to see major fluctuations in the underlying stock price.
Q: Should we continue to invest into long term holds like VOO and VTI even though they are down?
A: I'm a long-term investor, so I'm bullish on the S&P500 as a whole. Right now, I'm waiting for ETFs (ex. SPY, VOO) to rise and make a new higher high before purchasing shares. I tend to let stocks and ETFs "come up" to me and "prove" to me that they are worthy to invest in. Essentially, I like to add more to my shares when I see technical evidence that these underlyings are in an upward trend. If you don't want to be so technical about it, you can ask yourself, "where do I think the S&P500 will be in the next 5, 10, 30 years?" If the answer is "much higher from now," then yes, you can buy more shares at this point, given that you have this long-term perspective. Mathematically, by the time you retire, you'll see that waiting to get in on an underlying that's $10-20 "cheaper" is going to be an insignificant amount in the grand scheme of things.
Q: Hi Steve. I learned to sell CSP’s and CC’s with companies within the DOW 30 and SP 500 as you had taught us. Would you recommend selling CSP’s and CC’s on ETF’s like QQQM or VOO? Would there be any reasons not to?
A: Yes, you can use the wheel strategy on these two ETFs. Just be mindful that the option chains are shallow, meaning there are less expiration dates and strikes to choose from, compared to choosing an individual stock in the S&P500 and DOW30. Because liquidity is typically lower for these ETFs, it may be difficult to sell your contracts at a price you are okay with. The plus side to choosing these ETFs is that they are often times not as volatile compared to trading an individual company. But of course, due to lower volatility, the premiums may not be as high. Feel free to weigh the pros and cons and determine what your risk tolerance is.
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Have a wonderful weekend! It looks like we are still slowly going higher! 🐌
-Steve and the Call to Leap Team
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