Hey Wealth Builders!
This week, the markets trended neutrally with the Federal Reserve hinting towards smaller rate hikes over the last half of this year, with Chairman Jerome Powell and his colleagues content to focus on a wealth of data prior to their next decision in September.
However, Powell also said that the Fed 'wouldn't hesitate' to execute another large rate hike if the Open Markets Committee were to deem it appropriate.
What 's Steve Investing? 📈
SPY
This week, the S&P500 traded sideways and took a little breather from it's major rally that has been going on for more than a month. As we enter into the month of September and October, the markets typically are a little slower due to large trading institutions taking a vacation or even observing superstitious events that have happened in the past.
I did not add on anymore shares of SPY this week since I'm personally waiting for the ETF to break out and stay above the yellow resistance line.
AAPL
AAPL is still on its incredible rally. I'll be adding more shares if it can rise up to around $180.
MSFT
I am planning on adding more shares of MSFT to my long-term holds if the stock can rise up to around $300. With all of the stock splits that have been happening, I have a feeling that MSFT will be one of the next companies to also have one too.
COST
I'm slowly adding more shares of COST into my positions. I also believe that this stock is due for a stock split within the next 1-2 years.
Trade Of The Week:
Cash-Secured Puts
📌If you want to start new wheels, I recommend SLOWLY selling cash-secured puts on stocks that have delivered positive earnings and are showing a positive trend change in the technicals. Don't get too greedy because the markets can have a reversal at any time. Stocks that I favor right now include:
1. AAPL
2. MSFT
3. AMZN
4. GOOGL
5. AMD
However, I recommend being more conservative with choosing your underlying stock and strike prices. I personally favor AAPL and MSFT more since they pay dividends and are also part of the DOW30, compared to AMZN, GOOGL, and AMD.
You may want to sell a cash-secured put around 30-days out. I would also choose a strike around $5-10 OTM, or below the price of the current market price. Or, to be more specific, I would choose a delta that ranges from -0.30 to -0.16.
Make sure that if you are going to do this, you are comfortable with being assigned 100 shares of the stock at the strike price you choose in case the stock drops. If this happens, you can then convert the trade into a covered call to generate more premium.
If you are more bullish, you can sell covered calls or cash-secured puts a little bit closer NTM to get a little bit more premium.
Here are some recommendations you can consider:
MSFT
Monday Open: $291.00 Friday Close: $286.15 5-day change: -1.66%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $286.15 - Capital Needed: $28500.00 - Sell at the Expiration Date: 2022-09-16 - Select the Strike: $285 - Premium you'll receive: $670.00 - Cost Basis: $285.00 - $6.70 = $278.30
Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $286.15 - Capital Needed: $28615.00 - Sell at the Expiration Date: 2022-09-16 - Select the Strike: $290 - Premium you'll receive: $570.00 - Cost Basis: $286.15 - $5.70 = $280.45
AAPL
Monday Open: $171.52 Friday Close: $171.52 5-day change: 0%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $171.52 - Capital Needed: $17000.00 - Sell at the Expiration Date: 2022-09-16 - Select the Strike: $170 - Premium you'll receive: $398.00 - Cost Basis: $170.00 - $3.98 = $166.02
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $171.52 - Capital Needed: $17152.00 - Sell at the Expiration Date: 2022-09-16 - Select the Strike: $175 - Premium you'll receive: $318.00 - Cost Basis: $171.52 - $3.18 = $168.34
AMD
Monday Open: $100.51 Friday Close: $95.95 5-day change: -4.53%
Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $95.95 - Capital Needed: $9500.00 - Sell at the Expiration Date: 2022-09-16 - Select the Strike: $95 - Premium you'll receive: $420.00 - Cost Basis: $95.00 - $4.20 = $90.80
Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $95.95 - Capital Needed: $9595.00 - Sell at the Expiration Date: 2022-09-16 - Select the Strike: $97.5 - Premium you'll receive: $410.00 - Cost Basis: $95.95 - $4.10 = $91.85
AMZN
Monday Open: $142.80 Friday Close: $138.23 5-day change: -3.2%
Starting a New Wheel: Selling a Cash-Secured Put on AMZN - AMZN's Current Price: $138.23 - Capital Needed: $13800.00 - Sell at the Expiration Date: 2022-09-16 - Select the Strike: $138 - Premium you'll receive: $493.00 - Cost Basis: $138.00 - $4.93 = $133.07
Starting a New Wheel: Selling a Covered Call on AMZN - AMZN's Current Price: $138.23 - Capital Needed: $13823.00 - Sell at the Expiration Date: 2022-09-16 - Select the Strike: $139 - Premium you'll receive: $485.00 - Cost Basis: $138.23 - $4.85 = $133.38
GOOGL
Monday Open: $121.13 Friday Close: $117.21 5-day change: -3.23%
Starting a New Wheel: Selling a Cash-Secured Put on GOOGL - GOOGL's Current Price: $117.21 - Capital Needed: $11700.00 - Sell at the Expiration Date: 2022-09-16 - Select the Strike: $117 - Premium you'll receive: $345.00 - Cost Basis: $117.00 - $3.45 = $113.55
Starting a New Wheel: Selling a Covered Call on GOOGL
- GOOGL's Current Price: $117.21
- Capital Needed: $11721.00
- Sell at the Expiration Date: 2022-09-16
- Select the Strike: $117.5
- Premium you'll receive: $360.00
- Cost Basis: $117.21 - $3.60 = $113.61
All-in-all, see what you're most comfortable doing and your level of risk tolerance. 👍
Earnings
HD
Home Depot reported sales of $43.8 billion for the second quarter of fiscal 2022, an increase of $2.7 billion, or 6.5 percent from the second quarter of fiscal 2021.
Comparable sales for the second quarter of fiscal 2022 increased 5.8 percent, and comparable sales in the U.S. increased 5.4 percent.
Net earnings for the second quarter of fiscal 2022 were $5.2 billion, compared with net earnings of $4.8 billion, in the same period of fiscal 2021.
“In the second quarter, we delivered the highest quarterly sales and earnings in our
company’s history,” said Ted Decker, CEO and president. “Our performance reflects
continued strength in demand for home improvement projects. Our team has done a fantastic job serving our customers, while continuing to navigate a challenging and dynamic
environment. I would like to thank them and our many partners for their hard work and
dedication to our customers.”
The home improvement store expects total sales growth and comparable sales growth of approximately 3.0 percent for their Fiscal 2022 guidance.
I am still a long-term investor of Home Depot since I believe it's still a strong company. Note that this company is also part of the DOW30 and pays a dividend. It has had dividend growth for over 13 years, and currently has a quarterly dividend payout of $1.90, which is a 2.18% annual dividend yield. I will be adding more shares to my long-term holds.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Q1. I noticed that Steve's recommendations are generally around the high tech stocks and require a significant amount of capital. Do you have recommendations for lower cost stocks to start out with for covered calls? Can you put these in the weekly newsletter as well? Furthermore, I work for a large auditing firm that has many restrictions on investing in the tech firms. Thanks!
A1. At CalltoLeap, we love investing in high quality stocks that are part of the Dow 30 and pay a dividend. We only trade the wheel on high quality stocks because we want to lower our risk. These stocks are essentially the "honor roll" stocks and are typically safer to invest in due to larger institutional involvement. This is why we recommend doing using the Wheel Strategy on these DOW30 components.
We don't recommend trading the Wheel Strategy on cheaper stocks, like meme stocks, because we don't believe these are good quality companies. Yes, they may be more affordable, but they typically have a high risk with the potential of dropping faster during times of uncertainty. With that being said, the lowest priced stock we recommend the wheel on is AMD. However, keep in mind that AMD is a volatile stock that is part of the semi-conductor space. Please trade responsibly based on your risk-tolerance.
Q2. What is the best platform to use?
A2. We like using TD Ameritrade's Thinkorswim Web Platform. You can also consider Charles Schwab.
Q3. Hi Steve, I've started the wheels this year and have been very focused on the options part of things. But so far it's been good! Thanks much. However I know u always remind us to rem putting money in long term stocks that give out Divs. How would you recommend we do it consistently? Like DCA? I realised it's quite tough to look at the value of a stock say SPY and make a decision to just purchase it once a month as part of DCA. When would this once a month be and do we do it if the stocks fluctuate
A3. We're happy to hear you've been practicing and enjoying it! To answer your question, it is impossible to time the market and there is no 100% perfect time to purchase a stock because we can't predict the direction of the market. Some investors may consistently buy a stock when they get paid every month regardless of the price. Others may wait until it drops to a price they like and others may buy it on its way up. There are many things to take into consideration too, like market sentiment etc. Regardless, we go in with the mindset of being okay owning these shares for the long-term.
Q4. Is it okay if I just start with investing first and not sell covered calls?
A4. Absolutely! You can slowly dip your toes in the markets, especially if you're a beginner. You can consider buying some shares of SPY or VOO to start. Once you feel more comfortable, you can consider investing in individual companies, like AAPL and MSFT. In the end, do what you are most comfortable with!
📌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.
You are all doing a great job with being patient and disciplined with the market! Hang in there. Wonderful things are coming your way!🙂
-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.
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