Feb 255 min
by Ben Weiss, for the Call to Leap Team
Ben’s trades this week
Take it back now y'all...I closed my covered calls in AAPL early this week. I had chosen the $195 strike back when the stock was $190, and with the stock declining towards $180, my calls had also decayed by nearly 90%, so I wanted to lock in that profit. The next day, I sold to open new covered calls against 200 of my 300 shares. I chose the March 28 expiration date and rolled down to the $190 strike to be closer to the money and earn juicier premiums. I left one of my covered call slots (100 of my shares) unsold for a few days to see if AAPL's stock price rises some early next week. Building and disposing multi-contract positions is one way to spread out your risk and diversify your options positions in addition to choosing different strikes or expiration dates.
Grab the bull by the horns...I also closed out most of my TQQQ cash-secured puts early this week. TQQQ is a 3x bullish leveraged Nasdaq index ETF, meaning for every 1% the Nasdaq index goes up, this ETF goes up 3% (however, the opposite is also true downward!). With NVDA and AMD surging this week, my puts quickly lost value even with about 3 weeks left to expiration. I'll look to re-enter new cash-secured puts next week.
I've got the power...Based off the great recommendation from Steve and lots of folks in the CTL community, I signed up for budgeting app Empower this week to get a better dashboard picture of all my various accounts. While I won't be using the app to invest or trade stocks and options directly, I expect the insights I'll gain into how I'm spending and earning will certainly pay dividends 😉 So far the interface on desktop and mobile is very intuitive and user friendly and I'm excited to dig deeper. If you'd like to give Empower a try, click here to check it out!
Trade 1: CVS cash-secured put (CTL Level 1)
Expiration Date: April 19, 2024 (a "monthly" expiration)
Step 1: Have $7,250 cash as collateral
Step 2: Sell 1 $72.50 strike put option (delta 0.22) for $0.92/share
Credit/premium received: $92/contract (minus fees and commissions)
Thoughts: I believe CVS is undervalued and has potential for upward movement, showing modest but modest higher highs and higher lows over the past year.
Like our recent trades with CMCSA, I often like to sell options on smaller-priced stocks in my smaller account as it requires less cash to sell a cash-secured put (or to own 100 shares and sell a covered call) compared to the more expensive Magnificent 7 stocks, making it a more accessible entrance into the Wheel Strategy.
Remember: Be aware that more modest stocks like CVS can have lower IV which means you'll earn less premium as a trade off for lower volatility. It's like car insurance costing less for a standard 4-door sedan than an exotic sports car. As always, you'll want to decide if the reward is worth the risk for you. If you want to stick to trading options in big names like AAPL and AMZN, you can consider investing in S&P 500 stocks and broad-based ETFs like SPY and QQQ first to grow your balance and aim to trade options in higher-priced stocks in the future.
Investing like clockwork...As always, I held true to the dollar-cost average (DCA) method and bought a share 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: March 28, 2024 (a "weekly" expiration)
Step 1: Have $14,300 cash as collateral
Step 2: Sell 1 $143 strike put option (delta 0.42) for $2.97/share
Credit/premium received: $297/contract (minus fees and commissions)
Trade 2: AMZN Jade Lizard (CTL Level 3)
A "jade lizard" options strategy is simply the combination of a cash-secured put and bear call spread, all sharing the same expiration. The strategy can be useful for a neutral-to-bullish outlook on a stock, especially if you think there is a chance of a short-term pull back before reaching a certain higher stock price. If your brokerage allows, you can trade both CSP and BCS elements in the same order or you can break them up into separate trades.
Cash-secured put:
Expiration Date: March 28, 2024
Step 1: Have $17,000 cash as collateral
Step 2: Sell 1 $170 strike put option (delta 0.32) for $2.82
Credit/premium received: $282 (minus fees and commission)
Bear call spread:
Expiration Date: March 28, 2024
Step 1: Have $18,900 cash as collateral
Step 2: Buy 1 $210 strike call option (delta 0.03) for $0.16
Step 3: Sell 1 $190 strike call option (delta 0.17) for $1.16
Step 4: Set a buy-stop order for 100 shares at $189
Credit/premium received: $116 - $16 = $100 (minus fees and commissions)
Total Jade Lizard credit/premium received: $282 + $100 = $382
In it for the long haul... Like Ben, I was "boring" (in a good way!) and added to my long-term positions in SPY, QQQ, and SCHD by buying 5 shares each. Investing is a marathon, not a sprint! Slow and steady "boring" investing will win the race 🙂
As always, tweak these positions to whatever you feel comfortable with and fits your risk tolerance.
Friendly reminders from Steve:
Let your money work harder for you...
I'm also getting a 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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-Ben and Steve
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