Hi Wealth Builders!
Not very shocking, but we had another bumpy week with the markets ending flat.
Here's SPY:
Here's QQQ:
Here's DIA:
Why Are The Markets So Volatile? 😮
We still have uncertainty with the upcoming rate hikes and the Russia-Ukraine War. Hopefully everything knows this by now and has been doing their homework with reading the weekly positions and keeping an eye out on the news. 😉
Technical Analysis 📈📉
SPY:
There really isn't much to see this week as SPY is still struggling breaking out of its resistance line. If this continues, I most likely see us testing the $421 support line again, or dare I say, the $411 support.
QQQ:
The same goes with QQQ. We may be heading down to our previous $318 level if we continue down this bumpy road. We need some positive news in order for us to break out and move back up.
MSFT:
MSFT is still in a downward trend and could not break out this week.
AAPL:
AAPL got rejected again at the downward trending resistance line.
AMD:
And the same goes with AMD.
WM:
On the bright side, WM is one of the rare stocks that actually have been moving higher during this market turmoil. This has been one of my Steady Eddies in my portfolio that doesn't get a lot of media attention. I am planning on adding a couple of shares next week.
COST:
COST also is another rare stock that has been doing well over the past several days with the stock making higher highs and higher lows, compared to other stocks in the same index making lower highs and lower lows.
Trade of the Week:
Current Market Conditions: Again like the past couple of weeks, 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.
Instead of starting new wheels, why not set up bear call spreads or even pair your covered calls with some bear call spreads? This way, you don't have to have the initial 100 shares before selling a call option. Remember, the steps for a bear call spread is the "opposite" for selling covered calls. This way, when your underlying stock goes down, you won't incur an unrealized loss from owning the initial 100 shares. Cool, right?
If you are a Premium Member, I will have a video prepared for you this week in place of a Premium Membership. This way, I can talk more about bear call spreads in depth and how you can utilize the strategy in your portfolio.
Folks, please remember that it is important that we follow and respect the trend. We can't force the markets to move in a specific way. Only large institutions with money can do that. Rather, we can analyze what is happening and act accordingly.
Some of you are buying more shares, and dare I say, call options, and essentially catching a falling knife. Yes, in the long-term perspective, it doesn't matter too much where you enter a stock as long as the fundamentals are there. However, it is near impossible to find the bottom of a stock. Trust me. I've tried and have failed time and time again. Instead, let's see patterns in the markets and keep a close eye on how the markets react to news. If we start to see higher highs and higher lows and trend breakouts, then I would be inclined to SLOWLY buy more shares.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Minhoh
Q: What is a good delta to choose for selling puts?
A: It truly depends on what your goals are. For example, if you want to have higher upfront premium, you can consider selling a CSP 1 strike below the current trading price.
If you want to lower the chances of getting assigned for a CSP and you don't mind getting less upfront premium, you can consider selling at a lower delta.
To review, the delta is the percent chance of the underlying stock hitting that strike 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 hitting a strike by expiration. It is important to mention that the deltas of CSPs show up as a negative value, but it is the same concept. You will instead see -0.30 and -0.15, which still mean 30% and 15% :)
If you want to choose a delta that where you still get a high enough premium yet don't want to be assigned the shares, you can consider choosing a delta -0.16. This will give you a strike that is statistically around 1 standard deviation away from the current market price.
Jasmine
Q: Would you recommend selling more CSP to average down our shares?
A: No. At this moment, if the market continues to fall, there may be a chance that you will incur a greater unrealized loss if you were to be assigned the shares from your CSP. Stay patient and let your cash sit in your account. Since you're a Premium Member, you can consider setting up bear call spreads instead.
Tom
Q: I just started investing and I'm new to the program. Is it a good idea to start buying ETFs or stocks?
A: Welcome to our community, Tom! Since we are in some market uncertainty, you may want to consider waiting a few more weeks to see how the markets react to the rate hike and news about the Russia-Ukraine War. If you really can't wait to invest and don't mind the volatility, you can consider first investing in an ETF like SPY or VOO. This will slowly ease your way into the markets and you won't have to worry too much about earnings announcements or individual company news. If you plan on purchasing ETFs, we recommend SLOWLY buying a few shares.
Martin
Q: Hello my question is are the greeks implemented on cover calls or all options i had a secured put and i received the full premium i thought i was going to earn less because or theta. Can you help clarify a bit more
A: The greeks apply to all options, but we like to keep things simple here at Call to Leap. When selling covered calls, delta tells us the percent chance of the underlying stock hitting that strike price by expiration. For example, a delta 0.30 has a 30% chance, while a delta 0.15 has a 15% chance.
Theta tells us how much dollar amount is "decayed" or lost, per day. As option sellers, we love a high "theta decay" because this means the option is losing value for the person on the OTHER SIDE at a significant rate while we "gain it" on our end.
For example, a theta of 10.00 loses or "decays" $10 per day. So someone who pays us $300 premium, is losing $10 a day until expiration. Also, if that stock does not hit their strike price by expiration, they lose everything. As option sellers, we don't typically worry about theta decay as it is more worrisome for the option buyer.
With that being said, whenever you sell a CC or a CSP, you always receive the premium upfront, whatever that may be. As option sellers, theta decays in our favor.
Kendall
Q: What is the best platform to use to complete covered calls? Does it require many platforms? Thank you!
A: We like TD Ameritrade's ThinkorSwim web platform. You can also consider Charles Schwab! Either way, they are merging soon :).
You can use just one or multiple platforms to sell covered calls. It is up to you! We have great videos on how to trade the wheel strategy on different platforms in our program. Consider checking them out! Our members find them to be very helpful with the logistics of trading the wheel.
Earnings 📰
COSTCO | COST
Costco reported earnings on Thursday and sales beat Wall Street expectations. However, the stock headed lower as same-store sales growth slowed.
Costco's revenue for the year was $50.9 billion, which is up from $43.9 billion from a year ago.
Costco's revenue from membership fees was $967 million, which is up from $881 million from a year ago.
Costco reported $1.3 billion in the fiscal second quarter, compared with earnings of $951 million in the year-ago quarter. Fiscal second-quarter same-store sales rose 14.4% but slightly declined from fiscal first quarter’s 14.9% rise.
Also, looking at Costco's dividend history, they have been consistently increasing their dividends since 2004.
2022: $0.79 per share
2021: $0.70 per share
2020: $0.65 per share
2019: $0.57 per share
2018: $0.50 per share
Here is the company's 5-year chart:
I still believe that COST is a wonderful long-term investment. I am planning on purchasing more shares next week.
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.
Similar to last week, I believe this volatility will persist for the next couple of weeks which is why I recommend that you brush up your skills with setting up bear call spreads to collect even more premium.
What do you want to focus on doing?
Deposit more money into my account
Sell calls against my initial shares to collect premium
Collect dividends
Set up bear call spreads
Let the majority of your premiums, dividends, and deposits sit as cash, while patiently waiting until the sentiment turns positive
Make sure that you are properly allocated with the 30/30/30/10 allocation and well-diversified
Be patient, 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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