🔒 Membership Positions - December 26, 2021

Happy Holidays Wealth Builders!

The stock market is still indecisive with what direction to go.

Here's SPY:

Here's QQQ:

Here's DIA:

What Happened This Week?

Not too much happened this week as the markets seemed to be set on cruise control. Typically during the last two weeks of December, many institutional traders will go on vacation. A lot of companies also don't typically announce big news during this time.

Technical Analysis 📈📉

SPY:

Ah, we went back to the $470 level again. I'm still adding some of these ETFs to my portfolio. You can consider adding some shares at this level and some more shares when we break out as it will most likely indicate that institutions are putting money back into the markets.

SBUX:

SBUX is still trending neutrally between $106 and $116. I still recommend spinning the Wheel on this one.

Here are some stocks that I'm slowly adding to my portfolio.

EL:

EL just made another all-time-high. This one's a quiet one that doesn't get much media attention.

HD:

HD is another stock that is hovering near its all-time-high. There is certainly conviction from large institutions.

LOW:

Similarly, LOW is also doing well.

Here are some stocks that I'm keeping a close eye on:

DIS:

After a major drop, DIS is finally consolidating near the 200 EMA. Based on historical pattern, DIS tends to find footing here. If I start to see higher highs and higher lows, I will be inclined to add some shares.

I am observing some higher highs and higher lows with V. If I continue to see this pattern, I will also add more shares.

MA:

MA also has upward retracement in the past three weeks. Noticed that the stock moved up around $50 in the span of a month.

SQ:

Though I see the selling slowing down for SQ, I still wouldn't add any shares yet since I still see lower lows and lower highs. I'm still waiting for this stock to have some consolidation.

PYPL:

PYPL seems to have slowed its selling after 7 weeks of red candlesticks. Likewise, I will most likely be adding more shares if I start to see an upward trend.

ETSY:

ETSY is nearing the upward trend support line. If it pulls back a little more, I am thinking of adding more shares.

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: $320.05 Friday Close: $334.69 5-day change: 4.57%

Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $334.69 - Capital Needed: $33250.00 - Sell at the Expiration Date: 2022-01-21 - Select the Strike: $332.5 - Premium you'll receive: $698.00 - Cost Basis: $332.50 - $6.98 = $325.52

Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $334.69 - Capital Needed: $33469.00 - Sell at the Expiration Date: 2022-01-21 - Select the Strike: $335 - Premium you'll receive: $778.00 - Cost Basis: $334.69 - $7.78 = $326.91

AAPL Monday Open: $168.28 Friday Close: $176.28 5-day change: 4.75%

Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $176.28 - Capital Needed: $17500.00 - Sell at the Expiration Date: 2022-01-21 - Select the Strike: $175 - Premium you'll receive: $450.00 - Cost Basis: $175.00 - $4.50 = $170.50

Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $176.28 - Capital Needed: $17628.00 - Sell at the Expiration Date: 2022-01-21 - Select the Strike: $177.5 - Premium you'll receive: $463.00 - Cost Basis: $176.28 - $4.63 = $171.65

AMD Monday Open: $135.97 Friday Close: $146.14 5-day change: 7.47%

Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $146.14 - Capital Needed: $14600.00 - Sell at the Expiration Date: 2022-01-21 - Select the Strike: $146 - Premium you'll receive: $778.00 - Cost Basis: $146.00 - $7.78 = $138.22

Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $146.14 - Capital Needed: $14614.00 - Sell at the Expiration Date: 2022-01-21 - Select the Strike: $147 - Premium you'll receive: $748.00 - Cost Basis: $146.14 - $7.48 = $138.66

NKE Monday Open: $159.34 Friday Close: $165.67 5-day change: 3.97%

Starting a New Wheel: Selling a Cash-Secured Put on NKE - NKE's Current Price: $165.67 - Capital Needed: $16500.00 - Sell at the Expiration Date: 2022-01-21 - Select the Strike: $165 - Premium you'll receive: $372.00 - Cost Basis: $165.00 - $3.72 = $161.28

Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $165.67 - Capital Needed: $16567.00 - Sell at the Expiration Date: 2022-01-21 - Select the Strike: $167.5 - Premium you'll receive: $330.00 - Cost Basis: $165.67 - $3.30 = $162.37

SBUX Monday Open: $107.07 Friday Close: $112.37 5-day change: 4.95%

Starting a New Wheel: Selling a Cash-Secured Put on SBUX - SBUX's Current Price: $112.37 - Capital Needed: $11200.00 - Sell at the Expiration Date: 2022-01-21 - Select the Strike: $112 - Premium you'll receive: $244.00 - Cost Basis: $112.00 - $2.44 = $109.56

Starting a New Wheel: Selling a Covered Call on SBUX - SBUX's Current Price: $112.37 - Capital Needed: $11237.00 - Sell at the Expiration Date: 2022-01-21 - Select the Strike: $113 - Premium you'll receive: $239.00 - Cost Basis: $112.37 - $2.39 = $109.98

Ask Steve 💭

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

Amber

Q1. When you want to dip your feet in the market before trading the wheel, how many companies should you invest in to start? 1, 2, 3 4 etc? Also, would it be a good idea to buy stocks that CTL is currently trading the wheel on? e.g. MSFT, AAPL, AMD, NKE and SBUX?

A: Some members might want to slowly buy shares until they have 100 to trade the wheel. Others might just buy 100 shares and start the wheel immediately. Buying different companies does spread out your risk, as all of your capital won't be in one stock. However, you might not be able to trade the wheel if you don't have a lot of capital as your shares will be "split" among different companies. Ex: 25 AAPL, 25 SBUX, etc. It all truly depends on your risk tolerance and your portfolio size. You can consider buying 100 shares of a stock we recommend doing the wheel on and selling a covered call, or you can consider slowly buying until you have 100 shares.

Q2. When investing in stocks for the long term, what timeframe does this entail? For example, do we take a 5 year, 10 year or 15 year outlook on these long term stocks?

A: Yes, long-term can mean 5 years+.

Q3. Also, is investing in these long term stocks a form of "saving" for retirement?

A: We are investing for retirement :). When we think long-term, we think about how much the shares we buy will appreciate by the time we retire.

Andreea

Q1. Is there always a Craig that buys the covered call and pays the premium? What if no one is interested in the covered call that I wrote?

A: There are multiple aspects to this question. If there is a high volume of people trading contracts on a stock, the likelihood of finding a Craig will be higher. If there are not many people trading contracts on a stock it will be harder to find a Craig. Ultimately, there needs to be a Craig on the other side in order to receive a premium. Contracts are continuously being transferred between people. The contract you sold might initially be to Craig, but then Craig can sell it to someone else and that someone else can sell it to someone else etc. until someone executes it. However, it will still be your contract if that makes sense. If there are people trading contracts on a stock, you should be able to find Craig.

Q2. I wrote my first covered call and when I click on it I see that I have the options to "close position" or "roll position". What does that mean? I'm using interactive brokers.

A: Congratulations! If you sold a covered call, “closing your position” will cause you to buy it back. Be careful with this as the contract you sold may be worth more than what you bought it for and this will result in a loss. However, there are times when we can close our position early to lock in profits. When talking about covered calls, if you sell a covered call and the underlying stock price drops significantly, the price to buy your option back should be cheaper than what you purchased it for. This will allow you to lock in profits early.

“Rolling a position” is when you want to buy your contract back and sell it at another date or strike. This is a little more of an advanced trade. Because this is your first covered call, we recommend just waiting until expiration. Consider watching our level 1 videos for “buying back and rolling out” once you get comfortable with trading the wheel a few times.

Julia

Q1. New to investing here! I have index funds and ETFs in my Roth IRA (I am 23 years old). What general allocation should I follow for the Roth vs. a Brokerage Account? Should I do 30/30/30/10 in both? Covered calls and long term investments in both?

A: Wonderful job starting at a young age, Julia! What you do with your portfolio is completely up to you. Yes, we recommend the 30/30/30/10 allocation for your cash account. We also recommend being more on the conservative side with your Roth IRA and have more DOW30 dividend-paying stocks, like MSFT, AAPL, NKE, and SBUX, and ETFs that track the S&P500 like SPY. You can even choose to sell more covered calls in your Roth IRA because you won't be taxed on our premiums and capital gains when you take out your money at 59.5 years old.

Q2. Also...can I have a brokerage account via more than 1 platform? I have Fidelity right now, but can I open, let's say, an Acorn account?

A: You can absolutely have more than one account! We like different platforms for different reasons. Some members might use TDAmeritrade for trading options and Charles Schwab for long-term holds, etc.

Chris

Q1. When would you recommend rolling an option (specifically sold puts and calls as related to the wheel strategy)

A: As mentioned in our buying back and rolling out video, we may want to do this in order to have a higher unit rate. We know it can be a little confusing so we recommend watching this video a few times.

To review, let's say we sell a covered call for $400 and the underlying stock price drops after 2 weeks and our contract to buy back is now $50. If we have 2 weeks left on the contract we sold, we are only making $25 per week on that contract. In order to make more money per week while we wait for the stock to retrace, we can buy back and roll out and sell a $200 contract 4 weeks out which will give us $50 a week ($200 divided by 4 weeks = $50 a week). This would be better than $25 a week.

We typically don't recommend buying back and rolling out if you're a beginner as this can be a little confusing at first. Once you're comfortable, you can consider this strategy!

Q2. How about closing an option?

A: We recommend closing an option to lock in profits when you've made around 80-90% of your premium. It really depends on when you want to take profits and what you're comfortable with.

Q3. If you’re going to start a similar trade (changing date and/or price), wouldn’t you always roll it instead of close it?

A: It all depends on what you're trying to do. We typically let our options expire since we like to sell our contracts in a passive way possible. Sell a call, wait until expiration, and repeat.

NKE:

Despite supply-chain challenges, NKE posted fiscal second-quarter earnings and sales that topped analysts' expectations.

NKE reported fiscal second-quarter earnings of $1.34 billion.

Top-line revenue rose to $11.36 billion from $11.24 billion in the year-ago quarter.

North American sales were up 12% in the quarter. Europe, Middle East and Africa sales grew 6%. However, China sales dropped 20%.

Nike's digital sales grew 11% in the quarter and now accounts for 25% of its total revenue globally.

Nike guided for third-quarter revenue growth in the low-single-digit range.

Here's a 5-year chart of NKE:

Here's a 6-month chart of NKE:

Looking at the short-term technicals, it looks like NKE is still holding above its upward trending support line.

I am still bullish on this stock for the long-term and will continue to add more shares to my portfolio. I am also still spinning the Wheel in my separate account.

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.

Stay calm as I don't anticipate anything big happening next week.

Happy Holidays! Enjoy your time with your loved ones. 🎅🤶❄🎄

-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.