Happy Financial Literacy Month!
It looks like the markets took a little breather from the major rally it had over the past couple of weeks.
Let's take a look at the overall markets:
Here's SPY:
Here's QQQ:
Here's DIA:
Technical Analysis 📈📉
SPY:
Typically when we have a quick rally, many large institutions may want to take some profits, so they can get back into their stocks at a lower price. I am anticipating that we still continue to climb up over the next several weeks into earnings. With that said, there may also be some volatility ahead due to companies reporting their numbers.
QQQ:
QQQ seems to have resistance around the $370 level. I will be inclined to buy more shares if it breaks above it.
MSFT:
Similarly, MSFT also has some resistance at the $315 level. Because of the higher highs and lows I've been seeing over the past several days, we can now consider slowly re-entering with wheels if you have the capital to do so.
AMD:
After a Barclay analyst downgraded AMD this week, the stock dropped around 7%. Personally, I don't let external news worry me too much as this is just one person's opinion. There have been so many analysts over the years that say "the stock market will crash" or "this stock will ___" that I've become desensitized to the news. In my opinion, analysts are similar to food and movie critics. A lot of times they create unnecessary hype or fear, so they can gain attention themselves. At the end of the day, we want to focus on a company's increasing revenue, which AMD certainly has had over the past several years.
Is this stock volatile? Yes. Do algorithms quickly sell off the stock because of news? Yes. But remember, we always want to keep our emotions in check when investing and trading. I am bullish on AMD in the long-term, but more on the neutral side in the short-term. Looking at the charts, there seems to be resistance somewhere near the $123 level and we may be consolidating sideways. I also readjusted a potential downward trending resistance line as more data comes out. I am anticipating a breakout of the wedge as we approach earnings in the next couple of weeks.
You can consider starting the Wheel on AMD if you aren't already too overweight in the stock as I see that the stock is bouncing around between $100-124. Again, just remember that this stock doesn't pay a dividend and has a history of magnified price movements, which gives the stock high option premiums.
SBUX:
SBUX finally broke out of its downward trending resistance line this week. However, before I place more trust in this stock, I would like to see if it's able to make higher highs and lows for the next 1-2 weeks.
AAPL:
AAPL is once again holding strong and getting near its all-time highs again.
WM:
The same goes for WM as I'm adding a couple more shares to my long-term holds.
COST:
COST is also another wonderful stock that just made a new all-time high this week! I will be adding more shares to my long-term holds.
Trade of the Week:
Like last week, we are shifting our trading from bearish to neutral/slightly bullish now. This means that you can consider starting new wheels if you feel comfortable.
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: $304.33 Friday Close: $309.42 5-day change: 1.67%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $309.42 - Capital Needed: $30500.00 - Sell at the Expiration Date: 2022-04-29 - Select the Strike: $305 - Premium you'll receive: $765.00 - Cost Basis: $305.00 - $7.65 = $297.35
Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $309.42 - Capital Needed: $30942.00 - Sell at the Expiration Date: 2022-04-29 - Select the Strike: $310 - Premium you'll receive: $930.00 - Cost Basis: $309.42 - $9.30 = $300.12
AAPL Monday Open: $172.17 Friday Close: $174.31 5-day change: 1.24%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $174.31 - Capital Needed: $17000.00 - Sell at the Expiration Date: 2022-04-29 - Select the Strike: $170 - Premium you'll receive: $350.00 - Cost Basis: $170.00 - $3.50 = $166.50
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $174.31 - Capital Needed: $17431.00 - Sell at the Expiration Date: 2022-04-29 - Select the Strike: $175 - Premium you'll receive: $480.00 - Cost Basis: $174.31 - $4.80 = $169.51
AMD Monday Open: $117.70 Friday Close: $108.19 5-day change: -8.07%
Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $108.19 - Capital Needed: $10800.00 - Sell at the Expiration Date: 2022-04-29 - Select the Strike: $108 - Premium you'll receive: $635.00 - Cost Basis: $108.00 - $6.35 = $101.65
Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $108.19 - Capital Needed: $10819.00 - Sell at the Expiration Date: 2022-04-29 - Select the Strike: $109 - Premium you'll receive: $610.00 - Cost Basis: $108.19 - $6.10 = $102.09
NKE Monday Open: $133.76 Friday Close: $133.52 5-day change: -0.17%
Starting a New Wheel: Selling a Cash-Secured Put on NKE - NKE's Current Price: $133.52 - Capital Needed: $13000.00 - Sell at the Expiration Date: 2022-04-29 - Select the Strike: $130 - Premium you'll receive: $244.00 - Cost Basis: $130.00 - $2.44 = $127.56
Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $133.52 - Capital Needed: $13352.00 - Sell at the Expiration Date: 2022-04-29 - Select the Strike: $135 - Premium you'll receive: $306.00 - Cost Basis: $133.52 - $3.06 = $130.46
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Anne
Q1. What platform can I use to PAPER trade options? Moomoo, Webull and Schwab have paper trading but doesn't include options. thanks!
A: You can consider using TD Ameritrade's Thinkorswim Web platform to paper trade stocks and options.
Vinny
Q: I would like to know what to do if you sell a covered call, and goes so far in the money? Try to buy it back or let it be assigned. If you let it be assigned, it will be very hard to cash sell a put because very little premium. Example: bought aapl 163.00 sold call April 8 165.00 for 3.00 premium. Not aapl is at 177.00.
A: We typically let our covered calls get called away. If we start a new cash-secured put, it would typically be 1 strike below whatever the stock is currently trading for to get more premium. If you were to sell a CSP at the 165 strike, you would receive little premium as AAPL is now trading at a higher price.
Daniel
Q: I want to sell a Cash secured put on Stock XYZ. I currently own 75 shares on Stock XYZ. If I sell a Cash Secured Put on stock xyz, and I get assigned to purchase shares, do I need to purchased only an additional 25 shares? Or do I need to purchase an additional 100 shares?
A: 1 contract equals 100 shares. When we sell a CSP, we are contractually obligated to purchase 100 shares if we are assigned. This would give you a total of 175 shares. If you want to trade the wheel, you can consider buying 25 shares to complete 100 shares and then sell a covered call at or above your strike price to receive premium.
Lili
Q: Strategically, does it make sense to wheel two lower cost Dow companies (i.e. DOW and CSCO) or one larger Dow company if you have a ~$15k wheel budget?
A: Strategically, we like trading the wheel on stable stocks that we would like to own for the long-term anyways. We like trading the wheel on AAPL, NKE and MSFT. As you know, these companies are in the DOW 30. Previously, we have wheeled CSCO which is a DOW 30 stock, but have decided to go with more stable stocks like the ones mentioned previously.
At the end of the day, it is completely up to you which company you would like to wheel. With $15k, you can consider trading the wheel on NKE as we believe this is a stable stock.
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.
If you are a Premium Member, please keep an eye out for this week's post as I will be going over a couple of advanced concepts moving forward during this market.
Also, because it Financial Literacy Month, why not share with a friend a money-saving idea or encourage them to start investing? The more we spread awareness and teach each other, the faster we can all get to financial freedom!
Have a wonderful weekend! 😊
-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.
Comments