🔒 Membership Positions - February 28, 2021
- Call to Leap
- Feb 27, 2021
- 8 min read
Updated: May 27, 2021
Hey Members!
Wow, it was another pretty red week, with the majority of the tech stocks selling off.
Here's a snapshot of how the overall markets did:
Trade of the Week:
If you've been trading the Wheel Strategy on AAPL or AMD, you most likely got assigned your 100 shares from your CSP or your covered calls expired worthless.
Here are two options you can consider taking:
Option 1: To restart your Wheels again on Monday, you can consider selling around 4-6 weeks out at the same strike price that you sold last month. For example, if you had a Wheel for AAPL and sold a covered call at the $140 strike, you can resell your next call at the $140 strike again. This way, you will still be collecting premium and lowering your cost basis as you patiently wait for your shares to retrace back up.
Option 2: Because you initially sold covered calls against your shares to lower your cost basis, you can also consider selling 1-2 strikes below your initial sold strike price. For example, if you purchased 100 shares of AAPL for $140 and sold a call for $350, your new cost basis is $140 - $3.50 = $136.50. Instead of selling at the $140 strike, you can consider selling at the $139 or $138 strike. You will be obligated to sell your shares for a lower price than you initially purchased them for and higher than your new cost basis. However, you will be able to collect more premium since you are selling a little closer to the ATM strike.
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.
If you're a beginner, we recommend you starting off with selling cash-secured puts around 1-3 strikes OTM. This is typically a conservative starting point when starting the Wheel Strategy. However, if you're more bullish about the markets, we recommend starting your new Wheel by selling a covered call around 1-3 strikes OTM to not only receive the premium, but also make capital gains if you are called away at expiration.
Here are some trade recommendations and see what fits your personal risk-tolerance:
MSFT:
Monday Open:$237.42
Friday Close:$232.38
Change: -2.12%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT
- MSFT's Current Price: $232.38
- Capital needed: $23,000.00
- Sell at the Expiration Date: 2021-03-26
- Select the Strike: $230.00
- Premium you'll receive: $652.50
- Cost basis: $230.00 - $6.53 = $223.47
Starting a New Wheel: Selling a Covered Call on MSFT
- MSFT's Current Price: $232.38
- Capital needed: $23,238.00
- Sell at the Expiration Date: 2021-03-26
- Select the Strike: $232.50
- Premium you'll receive: $772.50
- Cost basis: $232.38 - $7.72 = $224.66
AMD:
Monday Open:$88.15
Friday Close:$84.51
Change: -4.13%
Starting a New Wheel: Selling a Cash-Secured Put on AMD
- AMD's Current Price: $84.51
- Capital needed: $8,450.00
- Sell at the Expiration Date: 2021-03-26
- Select the Strike: $84.50
- Premium you'll receive: $377.50
- Cost basis: $84.50 - $3.78 = $80.72
Starting a New Wheel: Selling a Covered Call on AMD
- AMD's Current Price: $84.51
- Capital needed: $8,451.00
- Sell at the Expiration Date: 2021-03-26
- Select the Strike: $85.00
- Premium you'll receive: $385.00
- Cost basis: $84.51 - $3.85 = $80.66
AAPL:
Monday Open:$128.01
Friday Close:$121.26
Change: -5.27%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL
- AAPL's Current Price: $121.26
- Capital needed: $12,100.00
- Sell at the Expiration Date: 2021-03-26
- Select the Strike: $121.00
- Premium you'll receive: $487.50
- Cost basis: $121.00 - $4.88 = $116.12
Starting a New Wheel: Selling a Covered Call on AAPL
- AAPL's Current Price: $121.26
- Capital needed: $12,126.00
- Sell at the Expiration Date: 2021-03-26
- Select the Strike: $122.00
- Premium you'll receive: $450.00
- Cost basis: $121.26 - $4.50 = $116.76
NKE:
Monday Open:$141.25
Friday Close:$134.78
Change: -4.58%
Starting a New Wheel: Selling a Cash-Secured Put on NKE
- NKE's Current Price: $134.78
- Capital needed: $13,400.00
- Sell at the Expiration Date: 2021-03-26
- Select the Strike: $134.00
- Premium you'll receive: $525.00
- Cost basis: $134.00 - $5.25 = $128.75
Starting a New Wheel: Selling a Covered Call on NKE
- NKE's Current Price: $134.78
- Capital needed: $13,478.00
- Sell at the Expiration Date: 2021-03-26
- Select the Strike: $135.00
- Premium you'll receive: $595.00
- Cost basis: $134.78 - $5.95 = $128.83
PINS:
Monday Open:$85.00
Friday Close:$80.58
Change: -5.2%
Starting a New Wheel: Selling a Cash-Secured Put on PINS
- PINS's Current Price: $80.58
- Capital needed: $8,050.00
- Sell at the Expiration Date: 2021-03-26
- Select the Strike: $80.50
- Premium you'll receive: $495.00
- Cost basis: $80.50 - $4.95 = $75.55
Starting a New Wheel: Selling a Covered Call on PINS
- PINS's Current Price: $80.58
- Capital needed: $8,058.00
- Sell at the Expiration Date: 2021-03-26
- Select the Strike: $81.00
- Premium you'll receive: $585.00
- Cost basis: $80.58 - $5.85 = $74.73
Earnings 📅
Square | SQ
Square reported their fourth-quarter earnings and revenue this past week. The company posted fourth-quarter revenue of $3.16 billion in its Tuesday-afternoon report, up from $1.31 billion a year earlier. This was an astounding 141% year-over-year increase!
Square’s revenue for the quarter included $987 million from its seller business and $2.17 billion from the Cash App, which is their peer-to-peer payment app that also allows them to invest in stocks and cryptocurrencies.
Square didn't provide 2021 financial guidance.
Here's a look at the 5-year chart of SQ:
Home Depot | HD
Home Depot reported fiscal fourth-quarter profit and sales that rose above expectations and boosted its dividend by 10%. Net income for the quarter increased to $2.86 billion from $2.48 billion in the year-ago period. Net sales grew 25.1% to $32.26 billion, same-store sales increased 24.5%, while U.S. same-store sales growth of 25.0% beat expectations of a 20.9% rise. Home Depot also raised its quarterly dividend to $1.65 a share from $1.50 a share, with the new dividend payable March 25 to shareholders of record on March 11.
The company stated that they were not going to provide guidance for 2021 due to the uncertainties of the pandemic. Chief Financial Officer Richard McPhail said that the retailer is not sure how long the pandemic will last and how that may influence consumer spending.
Here's a look at the 5-year chart of HD:
Etsy | ETSY
Etsy reported better-than-expected fourth-quarter results with soaring profits! The company reported fourth-quarter net income of $149 million, up from $31 million in the year-earlier quarter. They also reported an annual revenue of $617.4 million, up from $270 million from the prior year. This was an amazing 129% growth!
Etsy, which operates an online marketplace known for handmade and personalized goods, has been one of the biggest beneficiaries of the pandemic, as stuck-at-home shoppers turned to the company and other online retailers like Amazon and Walmart for both essential and non-essential items. In the fourth quarter, Etsy said it attracted 61 million new or reactivated shoppers to its site and recorded nearly 160% growth in “habitual buyers.”
As for their guidance, Etsy sees Q1 2021 revenue of $513-536 million, versus the consensus of $380.45 million.
Here's a look at the 5-year chart of ETSY:
Summary
At Call to Leap, we believe that Square SQ, Home Depot HD, and Etsy ETSY are still great long-term investments. If you like the company and believe in their fundamentals, you can consider investing in a couple of shares. From looking at the price action of these companies, they tend to have more volatile swings. Remember to see if the stocks fit your risk-tolerance and to slowly scale in, rather than buying a whole bunch of shares all at once, especially with SQ and ETSY as growth stocks.
Discord Launched! 💬
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.
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.
Level 1 FAQ 🙋♂️🙋♀️
Have 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. 😊
Pullbacks and Corrections 📉😲🚨
So why did the pullback happen? Well, it's a combination of things. Tech shares have been trending pretty high the past couple of months and the Federal Reserve is in talks of increasing interest rates, which makes it more expensive to borrow money from banks. Usually when Wall Street hears this, they don't like it and they tend to sell off shares for the near term. When will this pullback end? Though we can't accurately predict the future, we are thinking we might be in a lull anywhere between for 2-6 weeks.
If this is your first pullback in the markets, congratulations! We know that many of you, especially if you are new to the markets, are worried from seeing all the red in your brokerage app. Don't worry, market pullbacks and corrections are normal and upward retracement will return, especially when you're investing in fundamentally sound companies. The number you see in your brokerage account is not really how much money you have since you didn't sell anything. This number is just an unrealized loss and we strongly encourage you to not be so focused on it, especially for those of you who like to look at your accounts every day.
Are stocks at a discount? I believe so. However, I would feel more comfortable adding more to our long-term holds if we see a solid bottom/support from the sell-off. I would like to see higher highs, higher lows, and an upward channel/trend form, which can give us a bit more confirmation that institutions are putting their money back into the markets. I would also like to see anywhere from a 5-10% rise from the bottom of the sell-off. Does, this signal a 100% retracement back to our all-time-highs in the near term? Absolutely not. Remember that anything can still happen in the markets, which is why I always encourage to invest with caution and only buy a little shares at a time, depending on your personal risk tolerance.
If you're uncomfortable investing at this time, don't worry about it! Stick to the original game plan and add onto your positions that have risen 5-10% from your previous buying point. This discipline is to prevent you from overbuying shares all at once. So if you see that your favorite stocks are not advancing forward, it's totally okay to just let your cash build up on the side. Remember, cash is also a position too!
I also want to mention that many of us learn the most during a pullback and correction. Here are some questions that you can reflect on this weekend to prepare yourself for future pullbacks:
How do you feel about the drop? Did you panic? Or maybe you didn't mind at all? This may be a good time to reassess your risk-tolerance.
How are your Wheels? Did you remember to stagger your Wheels so they expire on different expiration dates? Were you selling too short of expiration dates, which then in turn didn't give you enough premium to cushion you for this pullback? Did you get FOMO and buy back an option because you thought that your shares were going to keep moving upward? Did you remember to start your Wheels conservatively by selling OTM CSPs first?
Did you go overboard with investing all at once?
Did you make sure the stocks you purchased were well-researched fundamentally sound stocks, and not just hyped up stocks you saw on the internet?
Premium Members, did you go overboard with LEAPS options and forget to stick to the 10% rule? Did you make sure that your LEAPS options were funded by at least 50% of your Wheel premiums? Did you make sure your LEAPS options were far out in expiration and deep in-the-money with a lot of intrinsic value?
We know some of these questions may sting, but it is a great teachable moment as we progress with building our portfolios and preparing ourselves for another downturn in the future.
All-in-all, remember to always stay calm, patient, and disciplined when it comes to the stock market. Keep selling your calls to bring in premium, as you patiently wait for the markets to come back. We are proud of you!
Stay positive, stay positive, stay positive! Great things are coming our way! 😀
- 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.
