Hi Wealth Builders!
We had some more companies deliver their reports this week. This is a long post, so make sure you have a cup of coffee before you get started.
Here's SPY:
Here's QQQ:
Here's DIA:
Technical Analysis 📈📉
SPY:
As companies are delivering their reports, it seems like Wall Street sentiment is getting better. We had a large drop down and retracement back up in the last 10 trading days. This may be a signal that institutional money is coming back in, especially with MSFT, AAPL, and GOOGL delivering positive reports. I am slowly adding some shares of SPY to my portfolio to average in my cost basis.
QQQ:
On the other hand, many tech companies in QQQ did not retrace as fast as the S&P500 index. This shows me that institutions are not currently favoring tech stocks at the moment.
DIA:
DIA is also making a strong bounce back. I am going to slowly add a couple of shares to my portfolio.
NKE:
I wouldn't start a new Wheel on NKE, until I see it start making higher and highs and higher lows. If you are spinning the wheel on this, you may want to sell at a further-dated expiration to get more premium.
MSFT:
Though I am bullish on MSFT, I'm staying disciplined on waiting for the stock to move higher before adding more shares. I want confirmation that institutional money is going back into this stock.
AAPL:
AAPL is still holding strong near its ATHs and a strong candidate for the Wheel.
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 and to lower the cost basis of your shares. 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).
Current Market Conditions: I still foresee some volatility ahead as Wall Street will be digesting earnings numbers and feeling out how rate hikes are going to proceed. If you want to start new wheels, you can, but I would proceed with some caution. My picks for the Wheel include MSFT and AAPL, and if you are feeling a little daring, perhaps AMD.
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 DOW components 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: Remember, 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: $308.95 Friday Close: $305.94 5-day change: -0.97%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $305.94 - Capital Needed: $30500.00 - Sell at the Expiration Date: 2022-03-04 - Select the Strike: $305 - Premium you'll receive: $932.00 - Cost Basis: $305.00 - $9.32 = $295.68
Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $305.94 - Capital Needed: $30594.00 - Sell at the Expiration Date: 2022-03-04 - Select the Strike: $310 - Premium you'll receive: $728.00 - Cost Basis: $305.94 - $7.28 = $298.66
AAPL Monday Open: $170.16 Friday Close: $172.39 5-day change: 1.31%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $172.39 - Capital Needed: $17000.00 - Sell at the Expiration Date: 2022-03-04 - Select the Strike: $170 - Premium you'll receive: $397.00 - Cost Basis: $170.00 - $3.97 = $166.03
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $172.39 - Capital Needed: $17239.00 - Sell at the Expiration Date: 2022-03-04 - Select the Strike: $175 - Premium you'll receive: $368.00 - Cost Basis: $172.39 - $3.68 = $168.71
AMD Monday Open: $107.93 Friday Close: $123.60 5-day change: 14.51%
Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $123.60 - Capital Needed: $12300.00 - Sell at the Expiration Date: 2022-03-04 - Select the Strike: $123 - Premium you'll receive: $700.00 - Cost Basis: $123.00 - $7.00 = $116.00
Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $123.60 - Capital Needed: $12360.00 - Sell at the Expiration Date: 2022-03-04 - Select the Strike: $124 - Premium you'll receive: $720.00 - Cost Basis: $123.60 - $7.20 = $116.40
Earnings
AMD:
AMD reported record revenue of $16.4 billion, up 68% from a year-to-year basis.
They also stated that they repurchased $1.8 billion of common stock.
As for their fiscal quarter, the company reported a record revenue $4.8 billion, up 49% year-over-year and 12% quarter-over-quarter.
Their computing and graphics segment for the quarter generated revenue of $2.6 billion, which is up 32% year over year and 8% quarter over quarter, which was driven by Ryzen and Radeon processor sales. The company reported that there was a strong demand for premium desktop and notebook PCs built with Ryzen 5000 processors.
Their Enterprise, embedded and semi-custom segment for the quarter generated revenue of $2.2 billion, which is up 75% year-over-year and 17% quarter-over-quarter. This was driven by higher EPYCTM and semi-custom processor sales.
Overall, AMD has had increasing revenue growth from quarter-to-quarter.
SBUX:
SBUX reported revenue for the quarter of $8.1 Billion, which is up 19% quarter-to-quarter.
Global comparable store sales increased 13%, driven by a 10% increase in comparable transactions and a 3% increase in average ticket.
North America and U.S. comparable store sales increased 18%, primarily driven by a 12% increase in comparable transactions and a 6% increase in average ticket.
Though there were many positives, many institutions also have concerns.
International comparable store sales decreased 3%, driven by a 5% decline in average ticket, partially offset by a 2% increase in comparable transactions. China comparable store sales decreased 14%, driven by a 9% decline in average ticket and a 6% decline in transactions.
PYPL:
PayPal reported revenue for the quarter of $6.9 billion, which is up 13% quarter-to-quarter.
The company reported Total Payment Volume (TPV) of $339.5 billion, which is up 23%, total active accounts to 426 million, which is up 13%, and 5.3 billion payment transactions, which is up 21%.
There were 9.8 million Net New Active Accounts (NNAs) added, including 3.2 million from the acquisition of Paidy. However, there was a 39% decrease of Net New Active Accounts for the quarter and a 33% decrease for the year.
PayPal missed user growth targets due in part to 4.5 million “illegitimate” accounts that joined the platform.
The company reported revenue for the year of $25.4 billion, which is up 18% year-to-year. This revenue growth does not include revenue generated from eBay.
PayPal's expects to grow their TPV to ~19-22% and revenue ~15-17% for the year. In an interview with CNBC, PayPal CEO Dan Schulman said the company took “a measured approach” to guidance, but expects revenue to accelerate in the second half of the year.
PINS:
Pinterest reported their revenue for the quarter of $847 million, which grew 20% year-over-year .
The company generated revenue for the year of $2,578 million, which is up 52% year-over-year.
However, Global Monthly Active Users (MAUs) decreased 6% year over year to 431 million.
“We took important steps in 2021 with the launch of our foundational technology to deliver a video-first publishing platform. And, I’m proud to say that for the first time, we surpassed $2 billion in revenue for the year — growing 52% over the previous year — and reached our first full year of GAAP profitability,” said Ben Silbermann, CEO and cofounder, Pinterest. “As we look ahead to 2022, we plan to further invest in our business as we scale the distribution of Idea Pins through our creator-led content efforts and enhance our core Pinner experience and shopping to make Pinterest the destination for inspiration and action on the internet.”
For their guidance, the company's expectation is that Q1 revenue will grow in the high teens percentage range year over year.
GOOGL:
Alphabet announced revenue for the quarter of $75.3 billion, which is up 32% year-over-year.
Google Services generated 69.4 billion, which is up from 52.8 billion a year ago.
Google Advertisement generated 61.2 billion, which is up from 46.2 billion a year ago.
Sundar Pichai, CEO of Alphabet and Google, said: “Our deep investment in AI technologies continues to drive extraordinary and helpful experiences for people and businesses, across our most important products. Q4 saw ongoing strong growth in our advertising business, which helped millions of businesses thrive and find new customers, a quarterly sales record for our Pixel phones despite supply constraints, and our Cloud business continuing to grow strongly.”
Ruth Porat, CFO of Alphabet and Google, said: “Our fourth quarter revenues of $75 billion, up 32% year over year, reflected broad-based strength in advertiser spend and strong consumer online activity, as well as substantial ongoing revenue growth from Google Cloud. Our investments have helped us drive this growth by delivering the services that people, our partners and businesses need, and we continue to invest in long-term opportunities.”
The company also announced that the Board of Directors had approved and declared a 20-for-one stock split. The stock split is subject to stockholder approval. If approval is obtained, each of the company’s stockholders of record at the close of business on July 1, 2022 (the “Record Date”), will receive, after the close of business on July 15, 2022, a dividend of 19 additional shares of the same class of stock for every share held by such stockholder as of the Record Date.
If you have a one share of GOOGL, the one share will split into 20 equal shares. The cost of the one share will also split into 20 equal parts. Everything is the same. You will just have 20 smaller shares instead of 1 large share.
Meta Platforms:
Meta Platforms, formerly known as Facebook, reported that their total revenue for the quarter was $33.7B, compared to the $28.1B from a year-ago quarter. This is a 20% increase.
Their total revenue for the year was $118B , compared to $86B from a year-ago period. This is a 37% increase.
Family daily active people (DAP) – DAP was 2.82 billion on average for December 2021, an increase of 8% year-over-year.
Family monthly active people (MAP) – MAP was 3.59 billion as of December 31, 2021, an increase of 9% year-over-year.
Facebook daily active users (DAUs) – DAUs were 1.93 billion on average for December 2021, an increase of 5% year-over-year.
Facebook monthly active users (MAUs) – MAUs were 2.91 billion as of December 31, 2021, an increase of 4% year-over-year.
Ad impressions and price per ad – In the fourth quarter of 2021, ad impressions delivered across their Family of Apps increased by 13% year-over-year and the average price per ad increased by 6% year-over-year. For the full year 2021, ad impressions increased by 10% year-over-year and the average price per ad increased by 24% year-over-year.
However, institutions sold off the shares due to some concerns. The company said it expected revenue growth to slow because users were spending less time on its platforms. Executives expects first-quarter revenue between $27 billion and $29 billion, where analysts expected for $30 billion.
Meta reported that they lost about a million daily users globally and stagnated in the U.S. and Canada. The company also said Apple’s iPhone privacy changes may impact its ad-targeting and measuring and result in a $10 billion revenue hit this year.
Summary:
Looking at Wall Street patterns, it looks like institutions will not excuse any below-par numbers. Even though there is increasing revenue growth for these companies on a year-to-year basis, if companies do not meet analysts' expectations or do not have increasing user/customer growth, institutions will sell off their shares. Wall Street is eyeing only A+ students and have no tolerance for B+'s at the moment.
I recommend slowly investing in AMD and GOOGL as it seems like institutional sentiment is higher for these companies. Remember that these companies can be very volatile, so please invest with caution.
Also, with GOOGL's future stock split, many investors tend to favor buying into a stock before the split happens. They may view the stock as a good entry to get the shares for a "lower price" in the future. And yes, I may consider running the Wheel on GOOGL later on, just like we did with AAPL when they had their stock split. Also keep in mind that with the stock split, volatility may follow since the shares are now more attainable for traders.
Though I still like FB, PYPL and SBUX, I would not add on anymore shares until I see some support line form and an upward trend in the their charts. I do favor PYPL and FB at the prices they are now, but I do not want anyone to catch a falling knife as many of these tech stocks that don't pay a dividend can still easily be sold off due to any negative news.
As for PINS, we already exited our positions months ago. However, I do still like their business model and revenue growth. We are observing that institutional capital will not favor these newer tech stocks at the moment.
Many new investors attribute stock prices to the fundamentals of the company. They think that if the stock goes up, the fundamentals must be good. Or if the stock goes down, the fundamentals must be bad.
This is not necessarily true.
I still believe in the future of all of these companies and see that the fundamentals are in tact for the long run. It is totally possible for a company to have some hiccups once in a while. Remember that we are coming out of a pandemic and that user growth for many of these platforms are naturally going to taper off.
Also remember that a lot of these analyst expectations are sometimes extreme. Though Wall Street may view a 10% growth as "low," if we think about the context, a 10% growth for a multibillion dollar generating company is huge! It oftentimes still stuns me on how many of these companies can still grow at an exponential rate, even with their company already being behemoths.
If you are investing in the companies for the long-term, don't be worried. There will be many moments in the stock market where these growth stocks will sell off and stagnate for a couple of months. However, once the the coast is clear with no negative news looming in the air, these growth stocks will take off in a blink of an eye.
Be patient and disciplined and you will be rewarded in the future.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Daniel
Q1. Hi Steve and CallToLeap Team,
I have not sold covered calls yet but am preparing my portfolio to start in the next month or so. My question on The Wheel, once I sell a covered call and my shares get called away, what should I do in a bullish market? Restart the wheel immediately and sell another cash secured put?
A: If your shares are called away you can consider selling another covered call or selling a cash-secured put to start the wheel again. When selling covered calls in a bullish market, we typically like selling a few strikes OTM with an expiration of 2-3 weeks out.
Q2. What happens if the market starts to correct between your CSP->CC step? or between your CC-CSP step? At what point would you "stop" the wheel?
A: We typically don't stop the wheel as we like to continue spinning it to collect premium every month. In volatile times, we may decide to not start any new wheels and just keep cash until the market stabilizes. If you sell a CSP and the market corrects, you may be assigned. If this happens and we are still in a pullback/bear market you can consider selling a covered call 5-6 weeks out to collect more premium as we wait for the underlying stock to retrace back up again. If you're selling a covered call and the market corrects, you can just sell another covered call at your cost basis 5-6 weeks out.
Clair
Q: Why do you recommend selling NTM strikes for CC and CSPs?
A: When you sell NTM strikes, you get a higher up-front premium. This premium can then automatically be used to lower the cost basis of your shares. If we are in a more bullish market, we recommend selling more OTM covered calls. You will receive less premium, but you will have a greater capital gain if your shares get called away.
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.