🔒Trading Spaces: Steve and Ben's Positions - April 7, 2024

by Ben Weiss, for the Call to Leap Team

Steve and I both decided to trade fairly cautiously this week with lots of weighty inflation and earnings reports on the horizon. We continued trading the wheel strategy though with smaller positions than earlier this year, reallocating some of that capital towards adding to our long-term stock and ETF holdings to be a bit more conservative than just selling bullish options.

Prime delivery...While the market had a down week, AMZN showed no obvious signs of slowing down. Steve and I were both able to close our AMZN LEAPS call for a respectable 8% gain, especially considering we only opened that position about 10 calendar days ago. If you are curious how to calculate annualized return on investment (AROI, or how much we'd theoretically profit if we could make this trade consistently for 1 year), you divide the profit by the risked capital, multiply by 365 days, and divide by how days the position was held open. For example, in my trade:

$408 profit / $5525 initial investment * 365 days / 10 days open = 269% annualized return!

This is a good reminder of how quickly and powerfully LEAPS can work for us, but keep in mind this speed and power works in both directions. We want to have an exit plan in case the stock and LEAPS move against us. Buying LEAPS is certainly a riskier options strategy which you should only choose if that level of risk fits your trading style and investment goals.

Wheelin' with Comcast...I was assigned my $45 CMCSA cash-secured put this week the day after ex-dividend. With the option sitting well in-the-money and due to expire in about 2 weeks, I wasn't surprised the option buyer chose to collect their stock dividend and then quickly exercise the option to put their 100 shares to me. The stock stumbled lower after ex-dividend so now I'm waiting patiently for the stock to retrace just a little bit before opening a covered call above my cost basis, approximately $42.50, for a decent premium.

I've got my eye on you...I'm eyeballing potential new wheels in AMD and MRVL, however AMD took a significant hit this week and continues to show downward divergence away from the broader market's upward climb. MRVL remains an intriguing idea—as always, I'll let you know if I decide to dive in!

Let's learn together!

Did you do your homework?...As promised last week, let's take a deeper look into one of my favorite technical analysis indicator: MACD, or Moving Average Convergence/ Divergence. Wow, that's a mouthful! So what does it mean and what does it do?

The MACD indicator is used by many traders, myself included, to spot potential trading entry and exit opportunities as well as get an idea of the momentum the stock's trend has. The indicator uses various staggered exponential moving averages (EMA, which is a different technical analysis indicator itself) to visually show if it may be a good time to open or close a position. No single indicator should be taken as a guarantee but it can contribute to developing your overall near-term outlook on a stock.

Technically speaking, on the MACD indicator you'll see the "MACD line" in blue that shows the subtraction of the stock's 26-day EMA and the 12-day EMA. You also see the "signal line" in orange which shows a 9-day EMA of the MACD line. Don't worry—if all that doesn't make sense, you can still use the indicator simply!

I look for 3 features on the MACD indicator to help build my bullish or bearish thesis:

While the first signal we discussed—the MACD line crossing above or below the signal line—may be the most common way to use this indicator, all three features can be used together like puzzle pieces to strengthen or challenge your hunch about a potential trend continuation or reversal ahead.

Investopedia is one of my favorite resources for learning about trading and investing. Check out their great MACD explanation and video to learn more.

🔔 CLASS DISMISSED! 🔔 See ya in Discord to continue the conversation.

Ben’s trades this week

Trade 1: TQQQ cash-secured put (CTL Level 1)

Expiration Date: May 17, 2024 (a "monthly" expiration)

Step 1: Have $5,500 cash as collateral

Step 2: Sell 1 $55 strike put option (delta 0.29) for $2.29/share

Credit/premium received: $229/contract (minus fees and commissions)

Thoughts: The Nasdaq had a down week with a strong down day on Thursday, seemingly rattling investors who have been quite used to an extended bull run this year. I still want to participate in the index, but I decided to sell this option at a lower strike ($55 compared to $58 recently) and with a longer expiration date to have more time to be right in case we see some correction in the coming weeks. The ETF is still trading within the upward channel lines I've drawn, but it is showing some weakness on the MACD indicator. So I'm playing this a little more conservatively, and I'm prepared to rollout and adjust this fast-moving ETF if needed, as usual.

🚨🚨🚨Caution: If you're not familiar with TQQQ, it's an ETF that follows the movement of the Nasdaq index fund QQQ. However, because it's 3x leveraged, it will increase or decrease 3 times the movement of QQQ. By nature, trading in leveraged ETFs can be highly volatile and isn't for everyone! I like trading TQQQ because of its much lower share price compared to QQQ, making it a more accessible way to trade in the broader Nasdaq index. Please reach out with any questions! 🚨🚨🚨

In it for the long-haul...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. I like to stick to my schedule and buy a small number of shares every week regardless of the market's movement to keep me on track long term.

Steve's trades this week

Trade 1: GOOGL cash-secured put (CTL Level 1)

Expiration Date: May 10, 2024 (a "weekly" expiration)

Step 1: Have $14,500 cash as collateral

Step 2: Sell 1 $145 strike put option (delta 0.28) for $2.50/share

Credit/premium received: $250/contract (minus fees and commissions)

Thoughts: I have my eye on GOOGL's earnings announcement expected around April 23 (shown in magenta above) which happens between now and the expiration date I've picked. Trading options around earnings events can be riskier, as the stock may move with more volatility, so that's something to be aware of.

Trade 2: AMZN cash-secured put (CTL Level 1)

Expiration Date: May 10, 2024 (a "weekly" expiration)

Step 1: Have $17,500 cash as collateral

Step 2: Sell 1 $175 strike put option (delta 0.27) for $3.20/share

Credit/premium received: $320/contract (minus fees and commissions)

Thoughts: Like GOOGL, AMZN also has their earnings announcement expected around April 25 (shown in magenta above) which happens between now and the expiration date I've picked. Again, that's a consideration to keep in mind.

My covered calls...I rollout out my covered calls on some of my long-term shares by buying to close early and selling to open out-of-the-money covered calls. I sold to open:

Go long!...I started a new long-term position in NVDA by buying a humble few shares to start. While NVDA is certainly more volatile and doesn't pay a dividend, it's impossible to ignore how successfully the stock is trending as one of the largest companies in the US by market capitalization.

I'm also continuing to add to my other long-term holds and sell covered calls against those shares. I bought more shares of my favorite ETFs including SPY, QQQ, and SCHD as well as one of my favorite dividend-paying stocks MSFT.

As always, tweak these positions to whatever you feel comfortable with and fits your risk tolerance.

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:

Check out Steve's favorite checking and savings accounts

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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