🔒 Membership Positions - August 22, 2021

Hey Everyone!

It looks like the markets trended a little sideways this week. Let's take a look at some of the charts.

Here's SPY:

Here's QQQ:

Here's DIA:

Trade of the Week:

Spinning your wheels: If your covered calls expired worthless this Friday, we recommend selling more calls at around the same strike price as before to collect more premium. If you sold some cash-secured puts and they lost around 80% of their value, you can consider buying back the contracts and reselling them for a further date to collect more premium. If your shares were called away last week, you can consider restarting your wheel. For beginners, you can consider starting again by selling a cash-secured put, around 1-3 strikes OTM (or for a lower price).

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.

Keep It Balanced: I know we are in a bullish market, but I still want to give you a friendly reminder to not go overboard with growth stocks, like AMD and PINS, for your Wheels. Yes, they do have high premiums and they are relatively less expensive compared to AAPL, NKE, SBUX, and MSFT. However, just keep in mind that stocks that don't pay a dividend and have high premiums/IV typically drop the fastest when there is uncertainty in the markets. If you are brand new to starting the Wheel, we recommend starting off with AAPL, NKE, SBUX, or MSFT.

Here are some trade recommendations and see what fits your personal risk-tolerance:

MSFT Monday Open: $293.19 Friday Close: $304.36 5-day change: 3.8%

Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $304.36 - Capital Needed: $30000.00 - Sell at the Expiration Date: 2021-09-17 - Select the Strike: $300 - Premium you'll receive: $460 - Cost Basis: $300.00 - $4.60 = $295.40

Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $304.36 - Capital Needed: $30436.00 - Sell at the Expiration Date: 2021-09-17 - Select the Strike: $305 - Premium you'll receive: $668.00 - Cost Basis: $304.36 - $6.68 = $297.68

AAPL Monday Open: $148.54 Friday Close: $148.19 5-day change: -0.23%

Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $148.19 - Capital Needed: $14500.00 - Sell at the Expiration Date: 2021-09-17 - Select the Strike: $145 - Premium you'll receive: $575.00 - Cost Basis: $145.00 - $5.75 = $139.25

Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $148.19 - Capital Needed: $14819.00 - Sell at the Expiration Date: 2021-09-17 - Select the Strike: $150 - Premium you'll receive: $465 - Cost Basis: $148.19 - $4.65 = $143.54

AMD Monday Open: $110.20 Friday Close: $104.65 5-day change: -5.03%

Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $104.65 - Capital Needed: $10000.00 - Sell at the Expiration Date: 2021-09-17 - Select the Strike: $100 - Premium you'll receive: $269.00 - Cost Basis: $100.00 - $2.69 = $97.31

Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $104.65 - Capital Needed: $10465.00 - Sell at the Expiration Date: 2021-09-17 - Select the Strike: $105 - Premium you'll receive: $490 - Cost Basis: $104.65 - $4.90 = $99.75

NKE Monday Open: $170.70 Friday Close: $167.79 5-day change: -1.7%

Starting a New Wheel: Selling a Cash-Secured Put on NKE - NKE's Current Price: $167.79 - Capital Needed: $16500.00 - Sell at the Expiration Date: 2021-09-17 - Select the Strike: $165 - Premium you'll receive: $282.00 - Cost Basis: $165.00 - $2.82 = $162.18

Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $167.79 - Capital Needed: $16779.00 - Sell at the Expiration Date: 2021-09-17 - Select the Strike: $170 - Premium you'll receive: $520.00 - Cost Basis: $167.79 - $5.20 = $162.59

SBUX Monday Open: $116.69 Friday Close: $114.63 5-day change: -1.76%

Starting a New Wheel: Selling a Cash-Secured Put on SBUX - SBUX's Current Price: $114.63 - Capital Needed: $11000.00 - Sell at the Expiration Date: 2021-09-17 - Select the Strike: $110 - Premium you'll receive: $95.00 - Cost Basis: $110.00 - $0.95 = $109.05

Starting a New Wheel: Selling a Covered Call on SBUX - SBUX's Current Price: $114.63 - Capital Needed: $11463.00 - Sell at the Expiration Date: 2021-09-17 - Select the Strike: $115 - Premium you'll receive: $250.00 - Cost Basis: $114.63 - $2.50 = $112.13

Ask Steve 💭

Let's see what some of our members asked this week. Here are the top questions we received:

Samer

Q1: Call to leap recommends slowly adding to your position for stocks but in the example videos, of buying CC for instance, Steve buys 100 shares up front them immediately sells a call against them. I’m confused of which approach I should be taking?

A2: Great question! So when we talk about "slowly adding to your position for stocks" we are talking about long-term holds (shares that you want to hold for years). Consider buying a few at a time, based on your risk tolerance. For example, if you have $5,000 to invest in long-term holds, consider spending $500-$1,000 purchasing a few stocks at a time. The reason we recommend to invest slowly is because anything can happen in the stock market. You wouldn't want to miss buying opportunities during pullbacks and corrections. We also want to make sure the companies we're investing in continue to deliver great earnings. Once the stock rises a little more, you can also consider adding more shares to your portfolio. We want the companies to prove to us they're continuously growing over time so that our wealth can continue to grow over time too.

In regards to the "100 shares" (wheel strategy), covered calls and cash secured puts are traded typically within a month time frame. The reason we sell CCs and CSPs is to generate monthly income (premium). You can consider utilizing the premium you receive to add onto your long-term holds. Long-term holds are just buy and hold while the wheel strategy is used to make premium off of 100 shares every month. Selling 1 contract requires having 100 shares (CC) or having the collateral for 100 shares at a certain strike price (CSP). We recommend our members to do both if they are able to based on their own risk tolerance. What you decide to do is completely up to you :).

Q2: If covered calls (on good stocks) are so great, what’s wrong with having the majority of my portfolio in this strategy? For example, 70% CC, 15% value stocks, 15% growth stocks.

A2: Wonderful question! The reason we recommend 30% of our portfolio to be in the wheel is because let's say the stock you're doing the wheel on drops, only 30% of your portfolio would be in that stock, which means only 30% of your portfolio will be affected compared to 70% which is significant. We believe diversifying your investments gives more stability in your portfolio. For example, if you have tech, finance, and retail stocks and if tech stocks are down, you at least have finance and retail up. Also, keep in mind that if you are constantly collecting premium and capital gains in a cash-account, there will be more tax implications for you. At the end of the day, you can do whatever you'd like with your portfolio and it is completely up to you. I've seen members have their entire portfolio be the wheel and then they use the premium to add on more long-term shares. We do the wheel on stocks we wouldn't mind owning for the long-term anyways too. To each their own!

Johnathan

Q: I was wondering if I also able to have two Roth IRAs?

A: Yes, you can have multiple Roth IRAs, but you can't contribute more than $6,000 annually total.

Jamie

Q: Would it be better to sell a covered call with an expiration date that's one year out?

A: We typically don't like to sell options that far away since theta decay is lower for the options. Also, there will be a high chance that your shares will surpass the strike and you'll have to wait a longer duration of time to wait for the call to expire. We recommend sticking to selling 2-6 week covered calls.

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 Level 1 page. 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.

Earnings and Technical Analysis 📈📉

HD:

This week, Home Depot reported that quarterly sales exceeded $40 billion for the first time! The company posted top-line revenue of $41.1 billion, which is an increase of 8% year-over-year. However, same-store sales fell short and rose only 3%, compared with a 25% increase in the year-ago period. This led to Wall Street selling off some shares.

Home Depot was a company that benefited from the pandemic. However, like with many other companies, growth is slowing down compared to what we saw last year.

The company did not provide guidance.

I am still bullish in HD for the long-term. Looking at the short-term technicals, the stock broke its upward trendline and bounced off the $318 support line. Let's see what happens to HD for the next couple of days to see what pattern emerges.

If we zoom out and take a look at HD's 5-year chart, you can see that the stock has done quite nicely.

AAPL:

AAPL is still in consolidation right now, which is perfect for selling covered calls. We may continue this consolidation for the next couple of weeks as many institutional traders are taking a break.

AMD:

AMD is finally coming back down to earth. It's possible that it may come back down to its $100 level before moving higher again.

COST:

As for long long-term investments, you can see that COST is still moving strong above its upward trending support line.

MSFT:

Wow, I actually didn't expect to see MSFT breaking out like this on Friday! I would be a little cautious at these levels. The stock may want to take a little breather.

NKE:

NKE has a small pullback from its ATH. I want to see where the stock goes for the next couple of days so we can see if there are any patterns.

Visa broke it's upward trending line last week. It's possible that it starts consolidating again. I would like to see if the $229 support line holds for the next couple of days.

MA:

MA also is experiencing a pullback and seems like it's near its $355 support line. Let's see if this line holds in the next couple of days.

Looking at the 5-year chart, MA looks a bit tempting to purchase at these levels.

PINS:

Yikes! PINS broke its $55 support line this week. There is a chance that it may stay around its current levels or even trend down to the $49 level. If you are trading this stock, I encourage you to be patient and keep selling calls at around your cost basis, even if it's just for a couple of dollars. I've seen wild swings like this before with growth stocks in their early phases. I know it's easier said than done, but looking at the revenue growth for this company, I do think it's a compelling stock to be in.

WM:

There's not too much to see here, but WM is still slowly climbing up that hill. It's not an exciting company to look at, but it gets the job done when growing your portfolio for the long-term.

Institutions on Break and Short-term Future Outlook

Typically during this period after earnings are reported in the summer, many institutional traders will take a little break from their trading desks. This means that there might not be a lot of trading activity and IV may slightly drop.

Also, since we are nearing September 11, the sentiment during this time is not usually positive.

What is something we can do? We can continue to sell 4-week covered calls for the larger extrinsic time value. We may also want to keep our strikes a little closer ATM/NTM.

I expect that the markets will start moving again after September 11.

Lastly, because we have been moving higher and higher in the overall markets, I am anticipating for some sort of healthy pullback or correction. This may happen sometime in September or October. It's strange but there seems to be market superstition sometimes since many previous pullbacks and corrections happen during the month of October.

Again, this isn't meant to alarm you and you shouldn't sell all of your shares. Since we are long-term investors, this shouldn't affect us. I just want you to prepare you emotionally and maybe have some cash on the side just in case it happens.

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.

Have a wonderful weekend, 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.