🔒Membership Positions - April 17, 2022
- Call to Leap
- Apr 15, 2022
- 8 min read
Hi Wealth Builders!
We had another volatile week with the broad indices ending in the red. Let's take a look at the overall markets:
Here's SPY:
Here's QQQ:
Here's DIA:
Technical Analysis 📈📉
SPY:
This week, the consumer price index (CPI), which measures a wide-ranging basket of goods and services, increased to 8.5% from a year ago.. This was above analysts' estimations of 8.4%. The rise in inflation will most likely give the Federal Reserve a stronger reason to aggressively increase interest rates all throughout this year. Remember that whenever there are worries surrounding rising inflation or interest rates, the stock market typically will sell off. Many growth tech companies that have not yet matured in paying their investors dividends will most often drop the fastest.
SPY had sideways consolidation over the past four days. I have paused in adding more shares until I see a new bottom and will observe if the new bottom is higher than the previous low of $411. Remember that I like to invest when there is an upward trend with higher highs and lows.
QQQ:
Like what I've mentioned in the previous weeks, notice how tech shares in QQQ react compared to DOW30 components in DIA.
DIA:
You can observe that there is not as much of a volatile fluctuation in DIA compared to QQQ. Looking closely, there may be some support at the $340 level.
AMD:
AMD has officially broken its $99 support line this week. With the shares I have now, I am buying back and rolling out my covered calls to the May 27, 2022, $125 strike. Premiums are around $50 at the time of writing this.
I am going to patiently wait to see how Wall Street digests their earnings later this month.
SBUX:
SBUX came back down to its previous lows of $79. Like what I mentioned last week, I am going to patiently wait until earnings to see what kind of numbers they give and how Wall Street reacts. If Wall Street reacts negatively, I may consider slowly exiting out of our trade by selling $5-10 OTM call options against half of our positions. This will allow us to bring in more income, rather than selling at our cost basis. If our shares are called away, we can reallocate our free capital into another stock that we see is in favor by Wall Street. We can also strategically use the capital loss to offset our capital gains for the year.
AAPL:
Comparing AAPL to SBUX, we can observe that both of their latest lows are different from each other, even with both of them in the same S&P500 and DOW30 indices. AAPL is faring much better compared to other stocks with its new lows much higher than other S&P500 and DOW30 components.
MSFT:
MSFT may be in sideways consolidation, ranging between $275 and $315.
NKE:
Surprisingly, NKE had a big jump up when hitting its $125 support and after two analysts from JPMorgan and UBS upgraded their ratings on the stock. Remember that in the midst of all that is going on in the world, Nike's revenue rose 5% to $10.9 billion in the third quarter and had a 19% increase in digital sales.
Trade of the Week:
We still have a neutral outlook on the markets. As mentioned in the previous weeks, please be mindful that major earnings reports that are set to be released in the next couple of weeks, which means that there is a high probability of volatility ahead. If you are accustomed to this volatility and want to take advantage of the higher premiums, you can start new wheels. However, if you want be more conservative, you can wait until after the reports are released and see how Wall Street reacts to the numbers. You can instead continue to sell covered calls against the initial shares that you already own.
Buying Extra Shares:
If you are concerned with your underlying stock surpassing your covered call strike price on the day of expiration, why not buy an extra 25 shares on the side? This way, not only can you receive premium from your covered call, capital gains, and potential dividends, you can also ride the wave up with the free, extra 25 shares.
For example, instead of purchasing 100 shares to sell a covered call, you can buy 125 shares first. Or, if you want to start your wheel by selling a cash-secured put, you can buy 25 shares and sell a CSP.
Pay Attention to Delta:
If you do not prefer to sell NTM contracts, you can consider selling contracts based on their deltas.
For example, if you sell a covered call with a delta 0.30, this means you will roughly have around a 30% chance of getting your shares called away on expiration.
If you sell a cash-secured put with a delta -0.30, this means you will roughly have around a 30% chance of getting your shares assigned to you on expiration.
Below are some trade recommendations. See if they fit your risk tolerance before trading:
MSFT Monday Open: $291.79 Friday Close: $279.83 5-day change: -4.09%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $279.83 - Capital Needed: $27500.00 - Sell at the Expiration Date: 2022-05-13 - Select the Strike: $275 - Premium you'll receive: $853.00 - Cost Basis: $275.00 - $8.53 = $266.47
Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $279.83 - Capital Needed: $27983.00 - Sell at the Expiration Date: 2022-05-13 - Select the Strike: $280 - Premium you'll receive: $1070.00 - Cost Basis: $279.83 - $10.70 = $269.13
AAPL Monday Open: $168.71 Friday Close: $165.29 5-day change: -2.02%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $165.29 - Capital Needed: $16500.00 - Sell at the Expiration Date: 2022-05-13 - Select the Strike: $165 - Premium you'll receive: $580.00 - Cost Basis: $165.00 - $5.80 = $159.20
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $165.29 - Capital Needed: $16529.00 - Sell at the Expiration Date: 2022-05-13 - Select the Strike: $170 - Premium you'll receive: $355.00 - Cost Basis: $165.29 - $3.55 = $161.74
NKE Monday Open: $125.10 Friday Close: $133.46 5-day change: 6.68%
Starting a New Wheel: Selling a Cash-Secured Put on NKE - NKE's Current Price: $133.46 - Capital Needed: $13300.00 - Sell at the Expiration Date: 2022-05-13 - Select the Strike: $133 - Premium you'll receive: $385.00 - Cost Basis: $133.00 - $3.85 = $129.15
Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $133.46 - Capital Needed: $13346.00 - Sell at the Expiration Date: 2022-05-13 - Select the Strike: $134 - Premium you'll receive: $403.00 - Cost Basis: $133.46 - $4.03 = $129.43
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Sven
Q: Hi, in order to stagger my calls or puts do I do this on a weekly basis. For example when I would like to sell 3 different CSP on Nike today, Can I sell 1 put 4 weeks out, 1 put 5 weeks out and 1 put 6 weeks out , or shall I sell 1 put today 4weeks out, another put next week again 4 weeks out and another put again the week after 4 weeks out. And how should I select the different strike prices? can you give an example? thanks in advance.
A: The second way you mentioned it is the way we do it. If we want to stagger 4 wheels in a month, what we would do is sell one CSP on the first Monday, 4 weeks out, a second CSP on the second Monday 4 weeks out, a third CSP on the third Monday 4 weeks out and a fourth CSP on the fourth Monday, 4 weeks out.
You select different strike prices based on whatever the stock is trading for at the moment. For example, let's say AAPL is trading at $170 on week 1, $175 on week 2, $165 on week 3 and $170 on week 4. If you are selling CSPs, and there is a $5 difference in strikes, you can consider selling a CSP at $165 for week 1, $170 for week 2, $160 for week 3 and $165 for week 4.
Please also be mindful of not having all of your capital allocated in one underlying stock. You may want to consider diversifying to spread your risk.
Dalton
Q: Hi team, i have a question: So lets say you sell a call for $300 premium at a strike $2 what you bought the underlying stock for and it gets called away because the stock now rose to $5 above what you bought it for. So you get the $300, then $200 in capital gains. but then if you want to buy the stock again to sell a call on it, it seems like it'll already cost more money than you made for the entire call-selling process. How do approach this?
A: Great question! When your shares are called away and you received your premiums and capital gains, we can have the perspective that the trade has completed. You can view these covered call trades as singular transactions, rather than an ongoing trade because the underlying stock is the same.
Yes, it is possible that you may need extra capital to restart a wheel with the same underlying. However, this is why we also want to make sure that we are consistently depositing more money into our accounts on a weekly or monthly basis. If you do not wish to have your shares called away, you can consider selecting a higher delta strike for your next covered call trade.
Lili
Q: Hi CLT, can you provide a few examples of low risk, dividend-paying stocks? I’d like to know what to look for when choosing/allocating. Thanks!
A: Of course! You can consider AAPL, MSFT, COST or HD to start. If you can't decide which individual companies you want to invest in, you can always consider spreading your risk across multiple companies by purchasing an ETF that tracks the S&P 500 like SPY or VOO.
Submit Your Questions 🙋♂️🙋♀️
Have any other questions? Before asking me and my team, feel free to check out our Level 1 FAQ. This FAQ is located on the Dashboard. You might find what you're looking for. 😊
If you do have questions, make sure to ask them on our Dashboard, rather than asking us via email. We also encourage you to watch all of the core video content and some of the past archived videos, read past Membership Positions, and take all the quizzes before sending us your questions.
Join Our Discord 💬
Investing, trading, and building wealth was a lonely journey for me. This is why my team and I created a Discord group for you and the other members to shares ideas and support one another. You don't have to go through it alone as we're all here to help. 😉
Make sure to check it out on the bottom of your "Dashboard" and follow the instructions on how to sign up. Coming from a teacher's perspective, I believe it's important to engage in conversations with people who are also seeking to reach financial freedom.
Remember that we are a community of wealth builders at all different levels, so be positive, kind, and helpful to others, so we can help each other get to financial freedom much faster.
Staring At Your Phone 🤳
I tend to see many beginner investors and traders let their emotions get the best of them, whether the markets are up or down. I see many people make rash decisions based on the short-term color of their portfolios.
Typically during market uncertainty, many investors become fearful, start to question their investing journey, and sell away their shares, when instead, they could be patiently waiting and planning to add more during potential buying opportunities. Likewise, when markets are extremely bullish, I see many beginner investors become overconfident, overallocated in particular stocks and options, and then quickly get burned when the markets reverse.
What can we do?
Sometimes it might be best to just not look at your brokerage app every day. Heck, you can even consider deleting the app on your phone for a period of time and come back to it when your covered calls expire. I know Richie from our Discord group practices this. 😉
Go hang out with family. Watch a movie with friends. Walk your dogs. The less emotional stress you have, the more strategic and resilient investor you'll become later on.
When the markets finally become "boring" to you, that's when you know you've made it as a mature investor. 👌
Stay patient, everyone! 😊
-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.
