Apr 146 min
Updated: Apr 15
by Ben Weiss, for the Call to Leap Team
After an uncertain week chock full of impactful economic news, and heading into earnings season next week and the volatility that often brings, Steve and I both decided not to open any new positions this week. We still have some existing options positions open so that doesn't mean we're sitting on the sidelines completely.
The S&P 500 and Nasdaq indices broke through their previous supports and are trending down currently so Steve and I are choosing to wait until we see a reversal and a breakout north of the red diagonal resistance line before opening new bullish options positions.
Let's all keep an eye on earnings coming up and how the stocks behave post-announcements. If a lot of companies deliver positive results but the stock price drops lower and can't break out from resistance, we could be in the midst of a broader market sell off. However, the inverse could prove to be true as well. Smart Money may latch onto solid earnings and use them as a catalyst to resume bullish momentum. Let's all pay attention together!
We've been spoiled with a long, mostly uninterrupted bull run since late 2023, but let's not forget that options trading gives us tools to profit in all market conditions. If we see strong signals the market is entering a bearish sell-off period, Steve and I may look to sell bear call spreads. Need to brush up on how we trade spreads? Check out the Level 3 videos!
Big wheels keep rollin'...While I didn't open any new options positions this week, I did use early-week gains in GOOGL and AMZN to close out my CSPs early and lock in 50%+ profits to take that risk off the table heading into earnings season uncertainty. Ordinarily, I might've waited more patiently for GOOGL and AMZN to continue their bullish climbs a little higher, but I wanted to store up more buying power now in case I need it to help repair other bullish positions in the coming weeks.
With CMCSA declining in price, I was assigned my 2nd put contract so I now have 200 shares, which I'm totally ok with! CMCSA had a modest up-day on Thursday so sold to open 2 covered calls above my cost basis for the May 17 monthly expiration. I'll continue to sell monthly covered calls until the stock turns around, all the while making a nice profit!
I also had one lot of 100 shares of AAPL that I hadn't sold a covered call against yet. With AAPL's strong week, I took the opportunity to sell a May 17 covered call, earning a higher call premium since AAPL stock price was moving upward. I like to sell to open my calls on a stock's up days and sell to open my puts on a stock's down days to squeeze a bit more premium out of the position.
Let's learn together!
Everyone needs a little support, and resistance...If you haven't already, check out my technical analysis on SPY and QQQ from this week's Market News & Outlook. I wanted to share a few more thoughts about support and resistance.
Support and resistance are terms we use to describe potential—but never guaranteed—levels where a stock's price might stall out or change direction. Support refers to a level underneath the current market price, where a declining stock might hit and bounce up from. Resistance refers to a level higher than where the stock is trading, and might stop a rising stock from climbing any higher.
We can look to the daily or weekly chart to draw support and resistance lines that stand out to us. And these lines can take different forms:
We often draw diagonal trading channels were the lower channel boundary represents the support pushing the stock higher and the upper channel boundary represents the resistance keeping the stock from rising too much. We draw these boundary lines by connecting as many candlestick lows and highs as possible—the more the better! I like at least 2 or 3 points to line up nicely before confidently drawing a channel line.
We can also draw horizontal support and resistance lines. I like to look back 1-3 years and see where the stock has historically been supported and resisted. Many stocks like to "have memory" and revisit old support and resistance levels.
Finally, we can also add Moving Averages (exponential or simple, either works) indicators to our chart. I prefer the 50-day and 200-day exponential averages. These MA lines will often provide additional support and resistance for a stock's price movement. Again, often but not always!
Let's check out the daily chart for SPY. In the first view, we can see 3 different trading channels drawn. The orange channel shows a longer-term bullish perspective; the green channel shows a more accelerated short-term bullish sprint; and the red resistance line at the very right shows the recent pull back. Notice how each of these three patterns I drew use at least 3 highs or lows to form the line.
In the second chart, you'll see multiple horizontal lines I've drawn connecting "popular" points in the stock's trading history. We might anticipate a declining SPY might drop to the $503 level, for example, and test that level for support. It might accept that support and reverse upwards, or it might reject that support and fall lower, maybe towards the $490 or $480 levels. While these levels are never guaranteed predictors of a stock's behavior, they can be helpful insights into investor psychology and current sentiment.
Also, check out the yellow 50-day EMA and the blue 200-day EMA. Will SPY find support from dropping any lower if it were to meet the 50-day EMA around $508? Let's stay tuned to find out!
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Ben’s trades this week
In it for the long-haul...Even though I didn't open a new positions this week, as always, I held true to the dollar-cost average (DCA) method and bought a few shares each of SPY, QQQ, SCHD. The DCA method allows me to check my uncertainty at the door about whether now is a good time buy or not, especially with so much perceived uncertainty right now. Who knows if the market will go up, down, or sideways? All I know is I'll continue to be disciplined about saving and investing no matter what.
You got this, everyone! Stay disciplined, pay yourself first, and always invest in your greatest asset—yourself. 🙌🏻
- Ben and Steve
Friendly reminders from Steve and Ben:
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Click here and here to see different accounts that could fit your banking needs. Offers including great sign-up bonuses and higher interest rates to let your money work harder for you.
💪💰 Do you have the power?...Based off the great recommendation from Steve and lots of folks in the CTL community, Ben recently signed up for budgeting app Empower to get a better dashboard picture of all his various accounts and has been really been enjoying how easy it is to use. If you'd like to give Empower a try, click here to check it out!
Let your money work harder for you...
I'm also getting nearly 5% APY by having my cash sit in my Fidelity account as I sell my cash-secured puts. Here's the link if you're interested in getting started!
Manage Your Cash Against Rising Costs | Compare Our Rate | Fidelity
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