🔒 Membership Positions - April 18, 2021
- Call to Leap
- Apr 18, 2021
- 6 min read
Updated: May 27, 2021
Hey Everyone!
Wow! Another green week? When will it stop?
Here's a snapshot of how the overall markets did this week:
Trade of the Week:
If you sold some covered calls last month, you most likely got your shares called away. Not only were you able to collect the premium, you were also able to make some capital gains! Woohoo!
Pay attention to the delta: You can always look at the delta of the call you are selling since the delta roughly approximates the probability of the price of the stock reaching the strike by expiration. If you see that the delta is 0.10, you know that there is roughly a 10% chance that the price of the stock will reach that strike price by expiration. Likewise, if you see that the delta is 0.20, you know that there is roughly a 20% chance that the price of the stock will reach that strike price by expiration.
If you're a beginner, we recommend you starting off with selling cash-secured puts around 1-3 strikes OTM. This is typically a conservative starting point when starting the Wheel Strategy. However, since it looks like the markets are progressing forward, we recommend starting your new Wheel by selling a covered call around 1-3 strikes OTM to not only receive the premium, but also make capital gains if you are called away at expiration.
Here are some trade recommendations and see what fits your personal risk-tolerance:
MSFT:
Monday Open:$254.71
Friday Close:$260.74
Change: 2.37%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT
- MSFT's Current Price: $260.74
- Capital needed: $26,000.00
- Sell at the Expiration Date: 2021-05-14
- Select the Strike: $260.00
- Premium you'll receive: $642.50
- Cost basis: $260.00 - $6.42 = $253.57
Starting a New Wheel: Selling a Covered Call on MSFT
- MSFT's Current Price: $260.74
- Capital needed: $26,074.00
- Sell at the Expiration Date: 2021-05-14
- Select the Strike: $262.50
- Premium you'll receive: $597.50
- Cost basis: $260.74 - $5.97 = $254.77
AAPL:
Monday Open:$132.52
Friday Close:$134.16
Change: 1.24%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL
- AAPL's Current Price: $134.16
- Capital needed: $13,400.00
- Sell at the Expiration Date: 2021-05-14
- Select the Strike: $134.00
- Premium you'll receive: $465.00
- Cost basis: $134.00 - $4.65 = $129.35
Starting a New Wheel: Selling a Covered Call on AAPL
- AAPL's Current Price: $134.16
- Capital needed: $13,416.00
- Sell at the Expiration Date: 2021-05-14
- Select the Strike: $135.00
- Premium you'll receive: $420.00
- Cost basis: $134.16 - $4.20 = $129.96
AMD:
Monday Open:$82.06
Friday Close:$82.15
Change: 0.11%
Starting a New Wheel: Selling a Cash-Secured Put on AMD
- AMD's Current Price: $82.15
- Capital needed: $8,200.00
- Sell at the Expiration Date: 2021-05-14
- Select the Strike: $82.00
- Premium you'll receive: $370.00
- Cost basis: $82.00 - $3.70 = $78.30
Starting a New Wheel: Selling a Covered Call on AMD
- AMD's Current Price: $82.15
- Capital needed: $8,215.00
- Sell at the Expiration Date: 2021-05-14
- Select the Strike: $82.50
- Premium you'll receive: $375.00
- Cost basis: $82.15 - $3.75 = $78.40
NKE:
Monday Open:$134.75
Friday Close:$134.31
Change: -0.33%
Starting a New Wheel: Selling a Cash-Secured Put on NKE
- NKE's Current Price: $134.31
- Capital needed: $13,400.00
- Sell at the Expiration Date: 2021-05-14
- Select the Strike: $134.00
- Premium you'll receive: $327.00
- Cost basis: $134.00 - $3.27 = $130.73
Starting a New Wheel: Selling a Covered Call on NKE
- NKE's Current Price: $134.31
- Capital needed: $13,431.00
- Sell at the Expiration Date: 2021-05-14
- Select the Strike: $135.00
- Premium you'll receive: $274.50
- Cost basis: $134.31 - $2.75 = $131.56
PINS:
Monday Open:$85.00
Friday Close:$76.22
Change: -10.33%
Starting a New Wheel: Selling a Cash-Secured Put on PINS
- PINS's Current Price: $76.22
- Capital needed: $7,600.00
- Sell at the Expiration Date: 2021-05-14
- Select the Strike: $76.00
- Premium you'll receive: $660.00
- Cost basis: $76.00 - $6.60 = $69.40
Starting a New Wheel: Selling a Covered Call on PINS
- PINS's Current Price: $76.22
- Capital needed: $7,622.00
- Sell at the Expiration Date: 2021-05-14
- Select the Strike: $76.50
- Premium you'll receive: $690.00
- Cost basis: $76.22 - $6.90 = $69.32
Low Risk vs. High Risk Stocks
Going back to the basics, remember that it's important to balance out your portfolio with some low risk stocks and some high risk stocks. Low risk stocks typically are part of the S&P500 and DOW30 and pay a dividend. Many high risk stocks that we trade are only part of the S&P500 and most likely don't pay a dividend.
When there is uncertainty in the markets, stocks that don't pay a dividend typically drop the fastest. Why? It's because many institutions will want to take quick profits on stocks that already rose dramatically. When selling begins, it typically causes a domino effect where it trigger stop losses for other institutions, which in turn causes even more selling.
On the other hand, stocks that do pay a dividend and are part of the S&P500 and DOW30 don't typically fall as fast. Many institutions will see these stocks as safety stocks that they can rely on during a pullback. If a stock pays $1 in dividends and an institution has 1 million shares, they would still be able to generate a guaranteed $1 million in the middle of a pullback. Pretty nice right? Large institutions have more of an incentive to keep these steady stocks in their portfolios, while they ditch some of the other stocks that don't pay a dividend.
So what happens when these high-risk growth stocks are sold off? A lot of institutions plan on going back into the stock, but now, at cheaper prices. Yes, I know, it's a little manipulative with these large institutions and how they can control the price of the stock very easily with their billions of dollars. Remember that we are little fish in the sea and our goal is to understand how these larger sharks swim.
It is important that we aren't tempted by high premiums all the time. Yes, you know what I'm talking about. I know that many of us are attracted to those large premiums from PINS and AMD, but brush off low premiums from NKE and MSFT.
Just know that when the next pullback comes (and oh yes, it WILL come like a swift ninja in the night), you want to be ready and have a portfolio that isn't just heavy in high-risk growth stocks.
Keep your portfolio balanced and your emotions under control. Stay disciplined. You got this!
Are You Ready For The Next Exam? 📄
Speaking of potential future pullbacks, if you are a Premium Member, have you been studying your Level 3 material? Since it looks like we might be running a little bit high, there MIGHT be a chance that we have another pullback soon in the broad markets. Again, this is just a little hunch and I could be totally wrong.
This isn't meant to scare you, but to prepare your emotions and skill. If a sell-off does happen, you can consider using some of our Level 3 strategies, specifically with setting up bear call spreads. And to answer your question, yes, you can make money when stocks go down. 😉
Also, since earnings are coming up, IV is increasing, meaning that it may be a good environment to be options sellers.
If you're investing for the long-term, this temporary pullback shouldn't mean that much to you. Remember that pullbacks and corrections are totally normal in the markets and it's more important to look at the long-term trend.
It might be wise to have a little cash on side at all time just in case there is a little discount in the future. 🙂
Earnings
That's right folks! We have earnings coming up towards the end of April, so make sure to be on the look out to see which companies did well, and which ones didn't. We want to make sure that the companies we invest in continue to have strong business models and have increasing revenue over time.
IV is getting a little higher as we near these earnings date. If you want to continue your Wheels, you can. However, keep in mind that there may be some wild price fluctuations in the coming days.
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.
Level 1 FAQ 🙋♂️🙋♀️
Have questions? Before asking me and my team, feel free to check out our Level 1 FAQ. This FAQ is located on the Level 1 page. You might find what you're looking for. 😊
If you do have questions, make sure to ask them in our Level 1, 2, or 3 page, rather than asking us via email.
Stay patient and disciplined. You got this!
-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.
