Hi Wealth Builders!
We had some large companies deliver their reports this week, causing some retracement to happen in the market. Let's see what happened:
Here's SPY:
Here's QQQ:
Here's DIA:
Technical Analysis 📈📉
SPY:
It looks like we opened at the $433 level this week and had a large bounce back to $441. I believe that with a lot of the positive earnings that came out, this may serve as a catalyst for institutions to put their money back into the markets.
To be on the conservative side, however, I would want to see if there are some higher highs and higher lows for the next couple of weeks.
QQQ:
QQQ ended up around the same levels as last week.
DIA:
DIA also touched the $322 level and bounced back quickly.
SBUX:
SBUX is still trending lower. Keep in mind that their earnings are coming up, which could be a catalyst for it to rise again.
NKE:
NKE's earnings date is most likely going to be scheduled sometime in March. However, if the overall sentiment of the markets turn positive, NKE has a high probability of rising with the markets too.
MSFT:
Though MSFT had a strong bounce back up due to their positive earnings, we are now retesting the orange uptrending resistance line. I am planning on purchasing more shares right now and a little more if MSFT breaks above the orange line.
AMD:
Hang on tight with AMD. We may retest the orange uptrending support line. Keep in mind that AMD will deliver their earnings on Tuesday.
AAPL:
AAPL retested the $155 support and bounced back up. I am planning on buying more shares due to their strong earnings and their ability to still stay around its ATH even during this time of uncertainty.
MA:
I actually added some more shares of MA this week due to their strong earnings. I'm also planning on adding more if it can break through the yellow resistance line within the next few weeks.
V:
I also added some shares of V since the stock finally broke through its yellow resistance line.
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: We still have some volatility ahead of us since not all companies have reported their earnings yet. If you don't feel comfortable starting a new Wheel, I recommend waiting until after the first or second week of February to see how Wall Street digests all of the numbers and their sentiment with the rate hike news. If you want to still start a Wheel, I would currently recommend MSFT and AAPL since they delivered stellar numbers this past week.
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: $292.20 Friday Close: $308.26 5-day change: 5.49%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $308.26 - Capital Needed: $30500.00 - Sell at the Expiration Date: 2022-02-25 - Select the Strike: $305 - Premium you'll receive: $903.00 - Cost Basis: $305.00 - $9.03 = $295.97
Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $308.26 - Capital Needed: $30826.00 - Sell at the Expiration Date: 2022-02-25 - Select the Strike: $310 - Premium you'll receive: $907.00 - Cost Basis: $308.26 - $9.07 = $299.19
AAPL Monday Open: $160.02 Friday Close: $170.33 5-day change: 6.44%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $170.33 - Capital Needed: $17000.00 - Sell at the Expiration Date: 2022-02-25 - Select the Strike: $170 - Premium you'll receive: $583.00 - Cost Basis: $170.00 - $5.83 = $164.17
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $170.33 - Capital Needed: $17033.00 - Sell at the Expiration Date: 2022-02-25 - Select the Strike: $175 - Premium you'll receive: $353.00 - Cost Basis: $170.33 - $3.53 = $166.80
Earnings
Microsoft | MSFT
Microsoft reported sales for the quarter that ended in December to hit $51.7 billion, which is up 20% from a year earlier. Its net income rose 21% to $18.8 billion.
Analysts were expecting $50.7 billion in revenue and $17.5 billion in net income.
Microsoft's overall cloud revenue increased 32% from the year-earlier quarter to $22.1 billion. Azure, Microsoft's cloud business, grew by 46%, which is slightly lower from the prior quarter's 48% growth.
Windows licensing revenue from PC makers increased 25% in the latest quarter, while the company's Surface computer sales rose 8%.
Microsoft's gaming revenue in the quarter grew 8% from a year earlier, with its hardware sales advancing 4% on demand for the latest Xbox consoles. Revenue from gaming content and services climbed 10%. Microsoft's subscription-gaming service, Game Pass, hit 25 million subscribers recently, up around 39% from a year ago.
Remote working is still persistent in today's economy and Microsoft has been facilitating this shift with their products and services.
Here is the 5-year chart of Microsoft:
I believe Microsoft is still a great company to buy for our portfolios and will continue to trend higher towards the end of this year. 👍
Apple
Apple reported first-quarter sales of $123.95 billion, which is up from its prior quarterly revenue record of $111.44 billion a year earlier. Earnings hit $34.63 billion, which is up from $28.76 billion, in the year-prior quarter. This is the first time Apple has surpassed $30 billion in a three-month period! Analysts expected $119 billion in revenue.
Apple's iPhone business posted a revenue record for the quarter, with sales of $71.63 billion for the December quarter, which is up from $65.6 billion a year earlier. Analysts expected $67.57 billion in iPhone revenue.
Even with the pandemic and supply chain issues, Apple had a record of $378.35 billion in revenue for the whole of 2021, which is up from $294.1 billion in 2020.
The company generated $10.85 billion in Mac revenue in the holiday quarter.
Apple reported $7.25 billion in iPad revenue, lower than the $8.44 billion it posted a year earlier and the consensus analyst estimate of $8.19 billion.
Apple generated $14.7 billion in revenue from its wearables, home and accessories category, up from $12.97 billion a year before. Analysts expected $14.36 billion. The services segment brought in revenue of $19.52 billion, which is up from $15.76 billion a year before.
Here is the 5-year chart of Apple:
I believe Apple is still a great company to buy for our portfolios and will continue to trend higher towards the end of this year. 👍
Visa
Visa reported a record $7 billion in quarterly revenue due to travel spending and sustained growth in categories like e-commerce. They also generated fiscal first-quarter net income of $4.0 billion, which is up from $3.1 billion a year earlier.
Visa's net revenue rose to $7.06 billion from $5.69 billion. Analysts were expecting $6.79 billion.
Payments volume rose 20% and processed transactions increased 21%. The company saw a 51% increase in cross-border volume (not including intra-Europe transactions) and a 40% increase in overall cross-border volume.
Visa forecasts a strong demand for travel as more countries lower pandemic restrictions.
Here is the 5-year chart of Visa:
I believe Visa is still a great company to buy for our portfolios and will continue to trend higher towards the end of this year. 👍
Mastercard
Mastercard reported earnings of $2.38 billion, compared with $1.79 billion in the year-ago quarter.
Revenue was $5.22 billion, which is up from $4.12 billion in the prior year's period. Analysts were expecting $5.17 billion.
Gross dollar volume increased 23% to $2.1 trillion. Mastercard said that customers had issued 3 billion Mastercard- and Maestro-branded cards by the end of the quarter.
Here is the 5-year chart of Mastercard:
I believe Mastercard is still a great company to buy for our portfolios and will continue to trend higher towards the end of this year. 👍
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Erik
Q: Hello i wanted to ask how do you know what strike to pick so your 100 shares wont get called away when doing covered calls? I know its no guarantee that it wont reach the strike but is it a certain strike you pick out the money to minimize the chance of the stock price reaching the strike so your 100 shares wont get called away? thnx.
A: You can look at the delta of an option to see what is the percent chance of the underlying stock price hitting that price by expiration. For example, a delta 0.10 is a 10% chance while a delta 0.80 is an 80% chance that the underlying stock price will hit that strike price by expiration. It is up to you on how aggressive or conservative you want to be. You can consider selling delta 0.30 covered calls if you want to have a higher chance of keeping your shares and still receiving a decent premium. We have a video on selling delta 0.30 covered calls. Feel free to check it out in our level 2 videos :)
Fernando
Q: Hi, I read the premium member articles and just want to confirm to hold off from doing any trades for now. But would it be a good time to do a cash secured puts or just buy 100 shares to START a Wheel?
A: Due to the high volatility of the market and trend, we are currently not recommending to start a new wheel. Once earnings are released and we see how the market reacts to both earnings and the fed, we can then consider starting new wheels. Please keep an eye out for our membership positions for further recommendations :)
Jerico
Q: I sold my first cash secured put on AMD at 134 strike price 3 weeks out, now the stock price is $110 and it expires next week. Do I just let it expire and get assigned the shares? When would you recommend me to sell a covered call on my shares after I get assigned? Thank you!
A: Great job Jerico! You can consider letting it expire and getting assigned the shares. You can then consider selling a covered call at the $134 strike price that you were assigned at. AMD's earnings are going to be released Feb 1st so you can expect some volatility. It may skyrocket, sink or stay the same. Regardless of what happens, we don't want to sell shares for less than what we purchased them for. So if you were assigned at $134, you can consider selling a covered call at $134+. If you're not assigned, you can consider restarting the wheel with another CSP or a CC.
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 💬
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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.
Is Your Account Balanced?
Like what I've mentioned before many times in the past, please make sure you have a balanced portfolio. Yes, tech growth stocks are fantastic during a bull market, but it's really the "boring" ETFs and dividend-paying DOW stocks that will keep you from having a heart attack during a pullback or correction. As we move forward, take some time to look at your portfolio to see if you are overweight in a particular security because believe me, another pullback or correction will happen and I want you to be emotionally ready for it.
Stay patient and calm for the next couple of days as we observe how Wall Street reacts to earnings and other monetary news.
You got this! 👌
-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.