Hi Wealth Builders!
We had another bumpy week. Let's see what happened.
Here's SPY:
Here's QQQ:
Here's DIA:
Why Did the Market Drop Again? 😮
1. Fears of the upcoming interest rate hike in March
2. News of Russia-Ukraine tensions continue to build
I still believe that we are going to have a rocky path for the next couple of weeks. Hang on tight and continue to sell your OTM calls against the shares you already have with an expiration date of around 4-6 weeks out. I do not recommend starting any new wheels at the moment due to our current market conditions. It may also be strategic to keep setting up your bear call spreads to collect even more premium, as we've been doing for the past 6 weeks.
Technical Analysis 📈📉
SPY:
SPY landed back on the $431 support this week. If more negative news persist, I would not be surprised that we fall back down to retest the $420 support.
QQQ:
Again, tech stocks are dropping much faster than stocks in the S&P500 and DOW30.
DIA:
Compared to SPY and QQQ, DIA did not drop as deep to it's previous lows three weeks ago.
NKE:
NKE seems to be in consolidation now and holding above the $139 level. If this consolidation continues, I may be inclined to start a new wheel at these levels.
MSFT:
MSFT is still trending lower. I am still patiently waiting to see when there is a reversal. There may be a chance we revisit our previous $275 support.
AAPL:
AAPL is still resilient.
AMD:
If you are selling calls against your initials AMD shares, you may want to pair your trade with some bear call spreads. This stock has been a wonderful underlying to set up spreads due to its high premiums.
SBUX:
Lastly, SBUX drifted lower again and may be filling the gap back in 2021. Stay patient with this one.
Trade of the Week:
Current Market Conditions: Again like last week, I don't recommend starting any new wheels at the moment and to only sell calls against the shares you already own to lower your cost basis. If you want to start new wheels, you can, but I would proceed with some caution. My pick for the wheel would include AAPL for now since it's holding up pretty well for the past several weeks.
Here are some trade recommendations and see what fits your personal risk-tolerance:
AAPL Monday Open: $167.37 Friday Close: $167.30 5-day change: -0.04%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $167.30 - Capital Needed: $16500.00 - Sell at the Expiration Date: 2022-03-18 - Select the Strike: $165 - Premium you'll receive: $443.00 - Cost Basis: $165.00 - $4.43 = $160.57
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $167.30 - Capital Needed: $16730.00 - Sell at the Expiration Date: 2022-03-18 - Select the Strike: $170 - Premium you'll receive: $400.00 - Cost Basis: $167.30 - $4.00 = $163.30
If you don't want to sell NTM strikes for your CSPs, you can also go with a conservative strategy of selling further OTM. I favor deltas that are around -0.16 (or a 16%). Just know that if you sell further OTM, you will receive less premium because the probability of the stock hitting the strike by expiration is going to be less likely.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Chia-Chin
Q. If I already have Apple shares that I bought a few years ago but do not want to have those called away in a CC because it would incur a big capital gain is there a way around it. I am assuming the shares are first in first out right? Thanks!
A: There is no 100% guarantee that your shares will not get called away when selling covered calls. If you do not want to sell these shares, we don't recommend selling a covered call on these shares. If you don't mind getting called away, but want to lessen the chances of your shares getting called away, you can consider selling a delta 0.30 or a delta 0.15 covered call. The delta tells you the percent chance of the underlying stock price reaching that strike price by expiration. For example, a delta 0.30 has a 30% chance and a delta 0.15 has a 15% chance that the underlying stock price will hit that strike price by expiration.
You can also consider changing the settings in your account to LIFO, which is last in first out. This will instruct your brokerage to sell the shares that you recently purchased, rather than the shares you purchased first.
Kristie
Q. I have about $15K in cash that I’m looking to invest. I noticed that many of your recommendations are to not start any new wheels as the market is getting lower.
Would you recommend buying 100 shares to do covered calls in the next week or so? I’m hoping to get into the market on it’s way down as I don’t think holding the cash out is doing me any favors.
A: Correct. We are waiting for some more stabilization in the market before starting any new wheels. We are closely observing the market to see how it reacts to rate hikes and the Russia-Ukraine situation. It is impossible to predict when we will see enough stabilization to then recommend starting new wheels. We completely understand how you feel and we would also like to start new wheels to make more money. However, we believe it is important to be a patient investor as emotional decisions can be costly. At the end of the day, it is completely up to you.
Martin
Q. Do the Greeks matter in secured puts? Or only Covered calls ?
A: When trading the wheel strategy (CSPs and CCs), we typically only worry about "delta" as this tells us the percent chance of the underlying stock price hitting a selected strike price by expiration. For example, a delta 0.30 has a 30% chance while a delta 0.15 has a 15% chance of the underlying stock price hitting the strike price by expiration. Observing the delta while trading the wheel can help you determine which strike you'd like to select :).
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 patient folks. I believe this volatility will persist for the next couple of weeks as we enter March. Also keep in mind that we are most likely going to get two or three more rate hikes later this year, which can cause even more market uncertainty. If the markets continue to stay fearful, I recommend that you brush up your skills with setting up bear call spreads to collect even more premium.
What am I doing during this period? I am still...
...depositing money into my account
...selling calls against my initial shares to collect premium
...collecting dividends
...setting up bear call spreads
...letting my premiums, dividends, and deposits sit as cash, while patiently waiting until the sentiment turns positive
Hang in there 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.
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