🔒 Membership Positions - August 8, 2021

Call to Leap
Aug 7, 2021
19 min read

Hey Everyone!

Whew! We had a pretty quiet week with Wall Street keeping an eye on other companies reporting their earnings.

Here's SPY:

Here's DIA:

Here's QQQ:

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.

PINS Wheels: If you have a Wheel on PINS, your call option most likely lost a lot of value due to the dramatic drop in price. If so, you can consider buying back and rolling out your call option to a later date. Here are some options you can consider:

Date: You can choose a date that is further out in time since there is more extrinsic value. We recommend choosing a date around 4-6 weeks out since this is where theta decay is most rapid.

Strike: You can set your strike price at the same strike price that you previously sold it on. However, you may get a much lower premium than before since the strike is far OTM. If you don't mind giving up your shares at a lower price, you can consider setting your strike at your new cost basis. For example, if you purchased 100 shares of PINS at $70 and received a $400 premium, your new cost basis would be $70 - $4 = $66 per share. You can set your strike anywhere between $66-70.

Keep in mind that based on the history of the stock, PINS is a relatively fast mover and can quickly retrace at any time. If you have shares, we recommend being patient with this stock due to its volatile nature.

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: $286.36 Friday Close: $289.46 5-day change: 1.08%

Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $289.46 - Capital Needed: $28500.00 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $285 - Premium you'll receive: $350.00 - Cost Basis: $285.00 - $3.50 = $281.50

Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $289.46 - Capital Needed: $28946 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $290 - Premium you'll receive: $560.00 - Cost Basis: $289.46 - $5.60 = $283.86

AAPL Monday Open: $146.36 Friday Close: $146.14 5-day change: -0.15%

Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $146.14 - Capital Needed: $14600.00 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $146 - Premium you'll receive: $310.00 - Cost Basis: $146.00 - $3.10 = $142.90

Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $146.14 - Capital Needed: $14614 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $147 - Premium you'll receive: $360.00 - Cost Basis: $146.14 - $3.60 = $142.54

AMD Monday Open: $105.93 Friday Close: $110.11 5-day change: 3.94%

Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $110.11 - Capital Needed: $11000.00 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $110 - Premium you'll receive: $573.00 - Cost Basis: $110.00 - $5.73 = $104.27

Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $110.11 - Capital Needed: $11011.00 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $111 - Premium you'll receive: $630.00 - Cost Basis: $110.11 - $6.30 = $103.81

NKE Monday Open: $169.06 Friday Close: $172.80 5-day change: 2.21%

Starting a New Wheel: Selling a Cash-Secured Put on NKE - NKE's Current Price: $172.80 - Capital Needed: $17000.00 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $170 - Premium you'll receive: $270.00 - Cost Basis: $170.00 - $2.70 = $167.30

Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $172.80 - Capital Needed: $17280.00 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $175 - Premium you'll receive: $510 - Cost Basis: $172.80 - $5.10 = $167.7

PINS Monday Open: $59.31 Friday Close: $58.78 5-day change: -0.88%

Starting a New Wheel: Selling a Cash-Secured Put on PINS - PINS's Current Price: $58.78 - Capital Needed: $5800.00 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $58 - Premium you'll receive: $233.00 - Cost Basis: $58.00 - $2.33 = $55.67

Starting a New Wheel: Selling a Covered Call on PINS - PINS's Current Price: $58.78 - Capital Needed: $5878.00 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $59 - Premium you'll receive: $287.00 - Cost Basis: $58.78 - $2.87 = $55.91

SBUX Monday Open: $122.03 Friday Close: $119.05 5-day change: -2.43%

Starting a New Wheel: Selling a Cash-Secured Put on SBUX - SBUX's Current Price: $119.05 - Capital Needed: $11900.00 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $119 - Premium you'll receive: $251 - Cost Basis: $119.00 - $2.51 = $116.49

Starting a New Wheel: Selling a Covered Call on SBUX - SBUX's Current Price: $119.05 - Capital Needed: $11905.00 - Sell at the Expiration Date: 2021-09-03 - Select the Strike: $120 - Premium you'll receive: $293.00 - Cost Basis: $119.05 - $2.93 = $116.12

Ask Steve 💭

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

Q: Hi Steve, I collected a $590 premium for my $77.50 PINS CSP last week that is due to expire 8/13. Needless to say, the reaction to earnings has not been good and the stock price has now dropped around 20%. Should I try to BBRO now or wait closer to expiration, see where the stock price is, and determine if I should BBRO?

A: Yes, PINS is a volatile stock. It can rise quickly, but it can drop quickly too. Because of this volatility, the premiums are usually higher. Because we still have around 2 weeks until your CSP's expiration, you can consider giving the stock more time to retrace. On the week of expiration, if you do not want to own the shares and if the underlying stock price is still below your strike price, you can consider BBRO. As you know, when we BRRO, we collect a little more premium as we give the stock more time to retrace.

Q: I have just done a cash secured put earlier this week for PINS. The price of PINS has since dropped significantly. Should I do anything during this periods or just wait it out ?

A: PINS is a volatile stock. It can rise quickly, but it can drop quickly too. Because of this volatility, the premiums are usually higher. You can consider giving the stock more time to retrace if your CSP’s expiration date is still a ways to go. On the week of expiration, if you do not want to own the shares and if the underlying stock price is still below your strike price, you can consider BBRO. As you know, when we BRRO, we collect a little more premium as we give the stock more time to retrace.

Q: Hey guys it’s me again… just need a pep talk… I must have the worse luck with stocks. If you remember I have been struggling with holding AMD at $93 cause I was selling calls for low premiums.. and sometimes not even selling some for weeks. And now AMD is soaring to 106… while I had sold a covered call for 94 expiring today

:( how do I move forward and past this… sad I missed out in over 1k gain on owning the stock.. help.

A: We hear you and we completely understand your frustration. We always want to make the best trade and get the most in return. The goal of the wheel strategy is to continuously make around a 2.5%+ return on our money every month. Some days we may get more and other days we may get less. The most important thing is that we're still making premium and collecting capital gains if our shares get called away during a covered call, assuming that we sell it for more that what we bought it for. It is impossible to time the market and anything can happen, at any time. AMD could have easily sank and then we would've been sad that we would be collecting even less premium. For this reason, we don't like timing the market. We focus on getting premium every month as it is still a win. In a bullish market, you can consider selling covered calls at a higher strike OTM. Keep in mind however, that you typically receive less premium as the strike goes more OTM for a CC. We also hope that you are using the premiums and monthly deposits to put into long-term holding shares as well.

Q: I have a PINS CSP that expires today with a strike price of 72 and the stock price dropped from 73 to 58. What is the best way to get out of this situation? Should i close my position or should I just hold t stock and wait for the stock to retrace back up?

A: There are a few things you can consider doing. I'm not sure what your expiration date is, but if it still has a ways to go, you can consider giving the stock more time to retrace. On the week of expiration, if the underlying stock price is below your strike still and you don't want to own the shares, you can consider buying back and rolling out to a further date. This option gives us a little more premium as we give the stock more time to retrace. We have a video explaining this concept in our level 1 :). You can also consider being assigned the shares and then sell covered calls against them at your initial strike price.

Q: Hey steve, Up until now all my CSP in MSFT have expired worthless since its been trending up. I do have 10 shares of MSFT, and thinking about buying another 90 shares to start the wheel with a covered call. What you recommend this for MSFT now? Or should I still sell CSP?

A: Great job James! In short, it is completely up to you. We typically recommend starting the wheel with a CSP and then if we're assigned, we sell CCs until our shares are called away. We can then consider restarting the wheel with a CSP or even a CC. If you want to trade the wheel on MSFT, you can consider either starting the wheel with a CSP or a CC. You can also consider looking at the premiums for each.

Q: Hey Steve, unfortunately for me I have sold a CSP for PINS at $80. The exp date was 7/30, and It dropped drastically the day of exp. I let my options expire and took up 100 shares. Im not sure if this was the best thing to do. But moving forward, if a stock drops like that near expiration or on it, would the best option be to have the shares assigned or buy back and roll out?

A: PINS is a very volatile stock. It can go up fast, but it can go down fast too. When we trade the wheel, we do it on stocks we wouldn't mind owning for the long-term anyways. To answer your question specifically, if you don't want to own the 100 shares, you can consider buying back and rolling out on the week of expiration if the underlying stock price is lower than your strike price. This option allows us to collect a little more premium as we give the stock more time to retrace. If you don't mind owning the 100 shares, you can consider being assigned and then consider selling covered calls at your initial strike price for lower premium until your shares are called away. It is up to you to decide what you would like to do :). Consider looking at the premiums in both scenarios as well.

Q: Hi! I sold a CSP for PINS last Monday, and after reading your position article analysis and seeing that stock price dropped, I want to know if it would be a good strategy to let my contract expire (on 8/13) and if assigned the shares, hold off a few weeks/months to sell a CC against my shares until PINS is back on an upward trend with the share price back up?

A: Since you still have time left in your contract, you can consider waiting until closer to expiration to see where the stock goes from now until then. On the week of expiration, if the underlying stock price is below your strike price and you do not want to own the 100 shares, you can consider buying back and rolling out to a further date. With this strategy, we collect a little more premium as we give the stock more time to retrace. If you don't mind owning the 100 shares, you can consider being assigned and then sell covered calls against them at the initial strike you were assigned to until your shares are called away. It is up to you :). Also, consider looking at the premiums for both scenarios.

Q: Hello, Where do you view the earnings report from?

A: We like to look on www.nasdaq.com. Type in a company's ticker symbol like "AAPL", click enter and then look on your left hand side for "earnings". You can also Google their conference calls and you should be able to listen to them. They also have transcripts for their conference calls.

Q: Hi! I sold a PINS CSP $70 strike for $230 premium expiring this Friday. Buy back is around $1205 right now, what should I do?? Should I get assigned and sell CC or buy back and roll out (and how long to roll out at what strike)? Not sure which one would be better, any guidance would be great. What would you do? Thanks!

A: You can consider getting assigned and then consider selling a covered call against your shares at the $70 strike. Because this CC is far OTM, you won't receive as much premium, but some premium is better than none :).

Q: Hi Steve and CTL team,

I have a question about a buying back and rolling out.

I had 2 PINS options that I bought on July 8th with the following details -

1. $75.5, exp. 8/6 - Prem.: $570

2. $70.5, exp. 7/30. Prem.: $320

The price dropped last week and the contracts prices increased tremendously. So, i decided to roll out and bought the contracts to close at $1595 and $1019 resp. I then sold to open at $1645 and $1089. However, my portfolio shows I am down 2k+. Could you please explain this?

A: Let's say you get assigned at $75.50 when the underlying stock is at $57.17. That is a $18.33 difference. If you multiply by 100 shares that is $1,833. Let's also say you get assigned at $70.5 and the current underlying stock price is $57.17. That is a $13.33 difference x 100 shares = $1,333. Those numbers would equal a $2k+ "loss" at assignment which is what your portfolio is showing. However, if you are assigned the shares, you can consider selling covered calls at the initial strikes as you wait for the stock to retrace.

Q: I posted a contract for my first covered call on Apple this morning using the strike price and expiration date in the level 1 membership positions but it didn’t sell. Any idea why that might be or what I can do tomorrow to give it a better chance?

A: Consider selecting "Market" when you execute the trade. This is the fastest way to get your trade executed.

Q: Hey there. In order to buy a long call (LEAP) , do I only need the cash in my account to cover the premium ? Or do I need enough $ to technically cover the 100 shares. Thank you.

A: In order to purchase a LEAP, you're required to have the funds to cover the cost of the premium. For example, if a delta 0.80 LEAP option costs $8,000 you would need $8,000 to make the purchase.

Q: Let’s say you buy a leap, and your stock you choose (appl) goes up 4-5 dollars and you make the profit you want. I need some clarity on selling the call option now. Is it just a simple sell of the option and you receive the premium back that you originally used to purchase the call? Thank you for the help.

A: If/when the stock moves up and you hit your profit target, you can consider locking in your profits by "selling to close" your LEAP option. If you had bought that LEAP for $8,000 and it is now worth $8,500, you will receive $8,500 when you sell to close, which would be a $500 profit.

The $8,000 example was a theoretical example and there is no guarantee that you will become profitable from a LEAPs option. It can easily go the other way too. It is important to mention that nobody can predict the stock market and if you trade LEAPs, consider only utilizing no more than 10% of your portfolio for this reason.

Q: What do "weeklys" next to the expiration date in on the think or swim platform mean? There is also a note saying that "you have selected a weekly option series with a "non-standard" expiration date"

A: Weekly options are similar to monthly options, except they expire every Friday instead of the third Friday of each month.

Q: Also, I accidentally bought a put, and closed the position today. Moments after I tried to closed the position, I tried to sell a cash secured put but TD wouldn't let me. Is my buying power also tied up when buy a put? I thought that only happened when you sell puts.

A: Be careful with this in the future. We only SELL cash-secured puts at Calltoleap. When you sell a cash-secured put, your brokerage holds money to cover 100 shares for the set strike price as collateral. They hold this money until expiration or if you decide you want to "buy to close" your position before expiration. You won't be able to utilize that money held as collateral for other purchases until it is released.

Q: I've been advised by people who are paying attention to the markets (and in Steve's Level 1 video, really) to buy some long-term stocks. It looks like a lot of stocks are going up as is the market in general. I just dabbled; spending about ~1k in some stocks: 1 in Apple, 1 in MSFT, 1 in each of the following ETFs: V & QQQ. But I'm sitting on 40k in a debit account and I'm looking to at least invest 10k in long-term stocks. So, which fundamentally strong stocks/ETFs should I buy?

A: It is important to mention that what you do with your portfolio is completely up to you. Please do your own due diligence when deciding which stocks/ETFs to purchase. As you saw in our videos, we like to base our stock purchases on the 4 criteria mentioned. With that being said, you can consider buying stocks that fit this criteria such as AAPL, MSFT and V. You can also consider buying ETFs that track the S&P500 like SPY and VOO. Consider investing slowly too.

Q: Hi, One more question, I bought the MSFT put on Monday and sold the put today (when I realized I executed a buy instead of a sell). Will my brokerage hold the money until the expiration date of 08.27?

If so, what can I do so that they can release the money?

A: When you sell a cash-secured put, your brokerage holds the collateral (money to buy the 100 shares) as long as you're in the option. The way for the money to be released would be to either let the CSP go to expiration (assuming you don't get assigned the shares) or "buy to close" your position. If you decide to "buy to close" your position, the cost to buy back your CSP may differ than what you received as premium. It may cost more or it may cost less to "buy to close", depending on where the underlying stock moved. For example, let's say you sold a cash-secured put on stock XYZ at a strike of $99 while the underlying stock price was at $100 and you received a $300 premium. Your brokerage holds $9,900 (because it's 100 shares at the $99 strike) as long as you're in that cash-secured put option. Now let's say the underlying stock price rises to $110, your cash-secured put would perhaps now cost $50 to "buy to close". However, if the underlying stock price goes to $90, it may then cost $500 to "buy to close" to release your money.

Q: Hi Steve and the CTL team, Thank you so much for the Wheel Strategy spreadsheet video, it is very helpful. I noticed that when you sell a CC and if the shares get called away, you also consider the capital gain in the total profit. However, in case of CSP, if the shares are assigned, shouldn't that be considered in the total profit too?

For eg, I got a $1645 premium for $75.5 CSP on PINS, I was assigned the shares somewhere around $59.5. So, my total profit is only $45, Is that correct?

A: Great question! When you sell a CSP, you only account for the premium you made. In addition, if you sold a CSP at the strike of $75.50 and you were assigned the shares while the underlying stock was $59.50, you still paid $75.50 for those shares. We pay whatever we selected as the strike price at assignment. Even if the underlying stock price went to $30, we'd pay whatever we selected as the strike price ($75.50). Perhaps you're thinking about cost basis? For example, if someone sells a CSP at the strike $75 for a $500 premium, their cost basis to own the 100 shares would be $7,500 (Cost of 100 shares) - $500 (Premium made) = $7,000 or $70.00 a share. You wouldn't account for this in the spreadsheet, but its something to keep track of so you know how much you "actually paid" for your shares.

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 📈📉

SQ:

What a weird surprise. Square actually reported their quarterly earnings on Sunday night and announced that they were looking to purchasing Afterpay Ltd. in a $29 billion all-stock deal.

See more: Square to buy Australia’s Afterpay in $29 billion deal

Square posted recorded revenue of $4.68 billion in the second quarter, which is up from $1.92 billion a year prior. The payment-processing company reported a total gross profit of $1.14 billion, which is almost double $596.8 million from before.

The company's Cash App brought in around $546 million in gross profit, which accounts for around half of the quarter’s totals.

The company had 40 million monthly transacting active customers for the Cash App.

Square’s seller business brought in $1.31 billion of revenue and $585 million of gross profit in the quarter.

Square expects “strong gross profit growth” for the month of July compared to a year ago. The company also expects seller gross payment volume to be up more than 45% on a year-over-year basis.

Looking at the technicals, Square is above its long-term trending line and there is conviction in the stock as it just hit an all-time-high.

Though this stock is highly volatile, I do believe it's a great company to hold for the long-term.

ROKU:

Roku posted second-quarter revenue of $645 million, which up from $356 million a year earlier.

The company generated $113 million in revenue from its player business and $532 million from its platform business, which includes advertising and licensing. They also said that they more than doubled monetized video advertising impressions compared to a year ago.

The company had 55.1 million active accounts as of the second quarter, up 1.5 million from the first quarter. However, analysts were anticipating 55.7 million active accounts. Viewing time was up 19% to 17.4 million hours relative to a year earlier, but the number declined from 18.3 million hours as of the first quarter. Again, this shouldn't be anything to worry about because we need to remember that we are coming out of a pandemic and that people are going to be less glued to their phones and TVs.

For the upcoming third quarter, the company forecasts revenue of $675 million to $685 million, while analysts were looking for $649 million. However, Roku anticipates that there will be a slowdown in year-over-year growth relative to last year's pandemic-driven acceleration.

Out with the darn cable services, and in come the world of streaming services. I believe that Roku is going to continue to do well for the long-term as they continue to strategically get a cut from other streaming services (ex. Netflix, Disney+, Hulu, etc.) and capitalize on ad space in people's living rooms. Yes, I am still long in this company and still adding more shares to my portfolio. If you're going to start a position, make sure to hold on tight because this stock is extremely volatile.

ETSY:

Etsy reported quarterly sales and profit above Wall Street forecasts, but had fewer active buyers than investors expected.

Etsy reported revenue of $98.3 million in the second quarter, compared with $96.4 million in the year-ago quarter. They also said that their sales rose 23% to $529 million!

Etsy said its marketplace grew around 11.9 million new and reactivated buyers who hadn’t purchased in a year or more. The number of active buyers rose 50% to 90.49 million, while some analysts were expecting 91.05 million active buyers for the quarter.

Etsy forecasted a decline in new-buyer growth due to the pandemic. However, the company still added 8 million new buyers to its platform, which is almost double the number of new buyers acquired in the second quarter of 2019.

The company said that habitual buyers (or buyers with six or more purchase days and $200 or more in spend in the trailing 12 months) grew 115% year-over-year.

Chief Executive Officer, Josh Silverman, said the company expects mid-single-digit growth in gross merchandise sales for its core Etsy Marketplace in the third quarter, and mid-teens GMS growth excluding facemasks, an important sales driver in the second quarter of 2020.

I am still long on ETSY and will also be adding more shares. From a technical perspective, it looks like the stock just hit a support line and may be due for a bounce. Like mentioned before, this stock is also a bit volatile so be sure to have more patience with this one.

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.

The majority of large companies have already delivered their earnings reports. However, we still have a couple more companies left over for the next couple of weeks, so make sure to keep a look out.

Stay patient and alert! 🙂

-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.