Hey Wealth Builders!
This week, we experienced quick retracement from our pullback. Let's take a look:
Here's SPY:
Here's QQQ:
Here's DIA:
Technical Analysis 📈📉
SPY:
SPY had strong retracement from last week's sell-off. We are currently testing the previous ATHs. I am planning on adding some more shares at this level. If we break out, I'll also add some more shares as it signals to me that institutions are shrugging off their Omicron Variant and inflation fears.
QQQ:
QQQ seems to have some support at around the $382 level and may be moving up retesting the $405 level again.
DIA:
I'm noticing that DIA's bullish green candlestick surpassed the levels two weeks ago. We did not see this in SPY or QQQ. Perhaps there is some sort of rotation into DOW30 stocks. This may be one of the reasons of why we saw quick retracement and/or stocks holding near their ATHs in DOW30 components, such as AAPL, MSFT, HD, and V.
Typically during a Santa Clause Rally, many institutional investors may take profits from growth stocks and reallocate them into value, dividend-paying stocks found in the DOW30.
Here are some notable winning stocks that I'm adding to my portfolio next week:
WM:
Trash is cash. Someone has to collect and recycle, and WM is the company to do the job. The stock is still holding up very well compared to many stocks in the markets. It look like there is a strong resistance at the $165 level. Let's see if we can break out next week.
EL:
EL is also holding strong and making new ATHs.
LOW:
LOW made another ATH this week.
HD:
The same goes with HD.
MSFT:
It looks like MSFT's previous resistance line is serving as a new support. There could be a new trend forming in the next couple of weeks. With MSFT's strong moat against many economic headwinds, there is a reason why it was named Yahoo Finance's Company of the Year for 2021.
AAPL:
What a fantastic breakout with AAPL this week! Like MSFT, there may be a new trend forming for this stock in the next couple of weeks.
Here are some stocks with interesting price actions this week:
V:
V feels like an old girlfriend/boyfriend that you keep getting back together with, but they keep breaking your heart. Looking at how quick the retracement was and volume this week, it looks like institutional investors are putting their money back in. Yes, I am still bullish on V and MA in the long-term, but I am still a little uncertain about the short-term fluctuations and if markets are shrugging off the DOJ concerns. I might add a couple more shares at these levels. However, if you want to be more on the safe side, you can observe to see if there are higher highs and higher lows made before adding anymore shares. If you feel that you are already overweight in V, you might want to consider holding off and focus more on the winning stocks that institutions are in love with at the moment.
MA:
Similarly with MA, I would only add more shares if I see higher highs and higher lows made. I also would like to see if MA can break the blue resistance line to possibly indicate a trend change.
NKE:
NKE is still trending sideways and possibly forming a pennant. I do anticipate that it will break out soon. And yes, NKE is still a great underlying to run your Wheel.
AMD:
AMD is still undergoing a pullback. Again, if you're new, this is something that I wouldn't really worry about. Remember that semiconductor stocks have high volatility, so make sure to not be overweight in this stock in your portfolio. If you are just beginning, I would stick with more steady DOW30 dividend paying stocks, like NKE, AAPL, SBUX, and MSFT, for your Wheels, especially during this Santa Claus Rally.
SBUX:
SBUX just retested a resistance line. If it doesn't break out next week, I anticipate it still bouncing around between the $110 and $116 range, which makes it a wonderful Wheel candidate.
FB:
I've been keeping my eye on FB and there might possibly be a support line ranging from April until now. I'm holding off on adding more shares to this company for now.
Wrap Up:
Like what I usually say, I would recommend adding onto your winning positions. These stocks are the ones institutions are favoring right now and it would not be the best idea to go against the trend. Remember, let the trend be your friend!
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 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: Just as a friendly reminder, we recommend to not go overboard with growth stocks, like AMD, 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. Please also be mindful that we recommend adhering to the 30/30/30/10 allocation.
Extra Shares On The Side: As I mentioned before in the previous weeks, you can always keep some extra shares on the side in case your favorite stock runs past your strike price. So instead of purchasing 100 share and selling a covered call, you can purchase 125 shares. You can also buy 25 extra shares and sell a cash-secured put. This way, you will have an extra 25 shares to gain from the potential price move up.
Here are some trade recommendations and see what fits your personal risk-tolerance:
MSFT Monday Open: $323.95 Friday Close: $342.54 5-day change: 5.73%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $342.54 - Capital Needed: $34000.00 - Sell at the Expiration Date: 2021-12-31 - Select the Strike: $340 - Premium you'll receive: $570.00 - Cost Basis: $340.00 - $5.70 = $334.30
Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $342.54 - Capital Needed: $34254.00 - Sell at the Expiration Date: 2021-12-31 - Select the Strike: $345 - Premium you'll receive: $573.00 - Cost Basis: $342.54 - $5.73 = $336.81
AAPL Monday Open: $164.29 Friday Close: $179.45 5-day change: 9.22%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $179.45 - Capital Needed: $17750.00 - Sell at the Expiration Date: 2021-12-31 - Select the Strike: $177.5 - Premium you'll receive: $435.00 - Cost Basis: $177.50 - $4.35 = $173.15
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $179.45 - Capital Needed: $17945.00 - Sell at the Expiration Date: 2021-12-31 - Select the Strike: $180 - Premium you'll receive: $495.00 - Cost Basis: $179.45 - $4.95 = $174.50
AMD Monday Open: $141.14 Friday Close: $138.55 5-day change: -1.83%
Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $138.55 - Capital Needed: $13800.00 - Sell at the Expiration Date: 2022-01-07 - Select the Strike: $138 - Premium you'll receive: $673.00 - Cost Basis: $138.00 - $6.73 = $131.27
Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $138.55 - Capital Needed: $13855.00 - Sell at the Expiration Date: 2022-01-07 - Select the Strike: $139 - Premium you'll receive: $688.00 - Cost Basis: $138.55 - $6.88 = $131.67
NKE Monday Open: $170.83 Friday Close: $169.06 5-day change: -1.03%
Starting a New Wheel: Selling a Cash-Secured Put on NKE - NKE's Current Price: $169.06 - Capital Needed: $16500.00 - Sell at the Expiration Date: 2022-01-07 - Select the Strike: $165 - Premium you'll receive: $485.00 - Cost Basis: $165.00 - $4.85 = $160.15
Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $169.06 - Capital Needed: $16906.00 - Sell at the Expiration Date: 2022-01-07 - Select the Strike: $170 - Premium you'll receive: $625.00 - Cost Basis: $169.06 - $6.25 = $162.81
SBUX Monday Open: $112.01 Friday Close: $116.73 5-day change: 4.21%
Starting a New Wheel: Selling a Cash-Secured Put on SBUX - SBUX's Current Price: $116.73 - Capital Needed: $11600.00 - Sell at the Expiration Date: 2022-01-07 - Select the Strike: $116 - Premium you'll receive: $244.00 - Cost Basis: $116.00 - $2.44 = $113.56
Starting a New Wheel: Selling a Covered Call on SBUX - SBUX's Current Price: $116.73 - Capital Needed: $11673.00 - Sell at the Expiration Date: 2022-01-07 - Select the Strike: $117 - Premium you'll receive: $270.00 - Cost Basis: $116.73 - $2.70 = $114.03
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Chris
Q1. Do you see most people trading options in a retirement account like a ROTH IRA or a taxable account? What do you suggest? I haven’t requested permission to trade options in my retirement account but was wondering if I should as to reduce the tax burden for short term capital gains?
A: We recommend trading options in both your Roth IRA and cash account. If you trade options in your Roth IRA, your capital gains will be tax-free when you withdraw from your account at retirement. Your cash account will be taxed from the premiums you make. However, you will not be penalized from withdrawing your money, as you would with a Roth IRA.
Martin
Q1. Hello, I've been studying covered calls and secured puts. I don't know if you guys give advice or anything but if you do i have 17k in stocks should i pull all that money and focus on covered calls with apple. Also I'm having trouble navigating this website a bit , when are FAqs made by steve :)
A: Great job Martin! This takes time and practice. We recommend trying these strategies out on paper trading to get the hang of it too. We give recommendations, but we always tell you to do your own due diligence and ultimately, you are free to do whatever you'd like with your portfolio. With that being said, having your entire portfolio in AAPL will cause lots of volatility in your portfolio as you'll only be investing in one company. However, if you'd like to sell covered calls on AAPL, you can consider doing this and using the premium you make to buy long term shares that are fundamentally and technically strong, pay a dividend and are part of the S&P 500 and/or Dow 30 to exponentially grow your wealth over time. Our FAQs can be found on our Dashboard.
Q2. I think i'm starting to get this, so we need 100 shares in cash to start covered calls right for example xyz is at 100 dollars so we need 10000 to be able to trade covered call right if we hit a strike price and the stock is hitting over it we sell the rights to who ever bought them if it expires worthless than we keep the contract( 100 shares of xyz of the company chosen ) and keep the premium for both either way right.
Agrekar
Q1. Are there any other stocks apart from AMD, NKE, DIS, AAPL that i can start the wheel on? I managed to save $13k but i see that all these require more capital to start a wheel.
Could you recommend some other stocks that I can trade wheel on? Thank you in advance!
A: We only recommend doing the wheel on stocks we recommend in our membership positions. We currently do not recommend doing the wheel strategy on DIS. In regards to looking for wheels, I know it might be tempting to do the wheel on less expensive stocks. However, with less expensive stocks, there usually is less institutional involvement, which means that stocks can sell off quickly during a pullback or correction.
One other stock you can consider starting the Wheel on is SBUX. This company is part of the DOW30 and pays a dividend.
Amber
Q1. Hi CTL team! I am very eager to trade The Wheel strategy however I only have $10 000 and I know it probably wouldn't be wise to have 100% of my capital tied up in one wheel. Should I invest in long-term stocks? If so, how long approximately will it be before I am able to trade the wheel?
A: Great job on having $10,000 ready to invest! This is an amazing accomplishment. Correct. It might not be the best idea to have 100% of your capital in one stock, however you are free to do whatever you'd like with your portfolio. It all depends on your risk tolerance and financial goals. If you don't want to use your entire capital in the wheel, you can consider slowly investing in fundamentally strong, dividend paying stocks that are part of the S&P 500 and/or Dow 30 and are in a strong upwards trend. Some examples include COST, HD, MSFT and EL. You can also consider slowly investing in ETFs that track the S&P 500 like SPY and VOO.
Once you have risk-tolerance in investing and have more capital, you can then transition into selling covered calls and cash-secured puts. You can consider following the 30/30/30/10 allocation, as we believe this is a balanced allocation to invest and trade.
Q2. Also if the membership positions are posted on a Sunday, when should you actually start your wheel? On Monday?
A: Yes. We typically release membership positions every weekend. It is recommended to execute the wheel strategy on the stock of your choosing, 1 hour after the market opens on that upcoming Monday.
COST Earnings
COST reported first-quarter net income of $1.32 billion, compared with $1.17 billion in the year-ago period. Revenue increased to $50.36 billion from $42.35 billion in the year-ago quarter. Comparable-store sales rose 15% overall in the quarter.
Executives said the company is weathering supply-chain issues and inflationary pressures better than other retailers.
"We've ordered earlier in many cases given the longer lead times," said Richard Galanti, Costco's chief financial officer, during the company's earnings call. "We feel pretty good about staying in stock and mitigating price increases as best we can."
Here is the 5-year chart of COST:
Here is the 1-year chart of COST:
Am I adding more shares to my portfolio? You bet!
Keep investing simple. Focus on companies with increasing revenue and follow the Wall Street trend.
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.
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.