Hey Everyone!
Wow! We had an amazing week of earnings. Many of our favorite companies we're investing and trading in delivered great numbers! However, like what I mentioned in last week's video, just because a company delivers good reports, doesn't mean that it will necessarily go up in the short term.
Here's a snapshot of how the overall markets did this week:
Trade of the Week:
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, especially for those of you who sold calls against your AMD, PINS, and NKE shares. If your cash-secured puts expired worthless, you can consider restarting your Wheel by selling another cash-secured put with an OTM strike price.
Selling at your cost basis: If you have shares for your Wheel that dropped dramatically in price, you can consider selling at a strike price that reflects close to your cost basis. For example, if you purchased 100 shares of PINS at $80 and got a $400 premium, your cost basis would be $76 per share. Looking at the option chain one month out, the $80 strike premium is low. This means that you can consider selling your next strike between $76 and $80. The lower strike you sell, the more premium you can receive. However, you will have a higher chance of getting your shares called away.
For me personally, I have shares of PINS that I purchased at $80 a share too. On Monday, I am planning on selling at the $78 strikes, one month out. I am also pairing my covered calls with bear call spreads, which is taught in Level 3.
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. If you have been using the Wheel Strategy for a while and have a more bullish outlook, 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:$261.66
Friday Close:$252.18
Change: -3.62%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT
- MSFT's Current Price: $252.18
- Capital needed: $25,000.00
- Sell at the Expiration Date: 2021-05-28
- Select the Strike: $250.00
- Premium you'll receive: $457.50
- Cost basis: $250.00 - $4.58 = $245.43
Starting a New Wheel: Selling a Covered Call on MSFT
- MSFT's Current Price: $252.18
- Capital needed: $25,218.00
- Sell at the Expiration Date: 2021-05-28
- Select the Strike: $252.50
- Premium you'll receive: $472.50
- Cost basis: $252.18 - $4.72 = $247.46
AAPL:
Monday Open:$134.83
Friday Close:$131.46
Change: -2.5%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL
- AAPL's Current Price: $131.46
- Capital needed: $13,100.00
- Sell at the Expiration Date: 2021-05-28
- Select the Strike: $131.00
- Premium you'll receive: $330.00
- Cost basis: $131.00 - $3.30 = $127.70
Starting a New Wheel: Selling a Covered Call on AAPL
- AAPL's Current Price: $131.46
- Capital needed: $13,146.00
- Sell at the Expiration Date: 2021-05-28
- Select the Strike: $132.00
- Premium you'll receive: $317.50
- Cost basis: $131.46 - $3.17 = $128.28
AMD:
Monday Open:$83.35
Friday Close:$81.62
Change: -2.08%
Starting a New Wheel: Selling a Cash-Secured Put on AMD
- AMD's Current Price: $81.62
- Capital needed: $8,150.00
- Sell at the Expiration Date: 2021-05-28
- Select the Strike: $81.50
- Premium you'll receive: $317.50
- Cost basis: $81.50 - $3.17 = $78.33
Starting a New Wheel: Selling a Covered Call on AMD
- AMD's Current Price: $81.62
- Capital needed: $8,162.00
- Sell at the Expiration Date: 2021-05-28
- Select the Strike: $82.00
- Premium you'll receive: $292.50
- Cost basis: $81.62 - $2.92 = $78.70
NKE:
Monday Open:$130.49
Friday Close:$132.62
Change: 1.63%
Starting a New Wheel: Selling a Cash-Secured Put on NKE
- NKE's Current Price: $132.62
- Capital needed: $13,200.00
- Sell at the Expiration Date: 2021-05-28
- Select the Strike: $132.00
- Premium you'll receive: $322.50
- Cost basis: $132.00 - $3.22 = $128.78
Starting a New Wheel: Selling a Covered Call on NKE
- NKE's Current Price: $132.62
- Capital needed: $13,262.00
- Sell at the Expiration Date: 2021-05-28
- Select the Strike: $133.00
- Premium you'll receive: $312.50
- Cost basis: $132.62 - $3.12 = $129.50
PINS:
Monday Open:$74.89
Friday Close:$66.37
Change: -11.38%
Starting a New Wheel: Selling a Cash-Secured Put on PINS
- PINS's Current Price: $66.37
- Capital needed: $6,600.00
- Sell at the Expiration Date: 2021-05-28
- Select the Strike: $66.00
- Premium you'll receive: $340.00
- Cost basis: $66.00 - $3.40 = $62.60
Starting a New Wheel: Selling a Covered Call on PINS
- PINS's Current Price: $66.37
- Capital needed: $6,637.00
- Sell at the Expiration Date: 2021-05-28
- Select the Strike: $66.50
- Premium you'll receive: $360.00
- Cost basis: $66.37 - $3.60 = $62.77
Earnings
Whoa! Let's take a look at some report cards that came out this week!
AMD
AMD revenue for the quarter ending March 31, 2021 was $3.445B, a 92.89% increase year-over-year.
AMD revenue for the twelve months ending March 31, 2021 was $11.422B, a 57.65% increase year-over-year.
Advanced Micro Devices Inc. reported that their data-center revenue more than doubled to fuel record quarterly sales, and increased its revenue forecast for the year.
Sales from enterprise embedded and semi-custom chips nearly quadrupled to $1.35 billion, compared with $348 million a year ago.
Executives also increased AMD’s guidance for the full year, to a sales increase of about 50% from previous guidance of a roughly 37% increase.
AMD expects second-quarter revenue of $3.5 billion to $3.7 billion, while analysts had been projecting $3.23 billion.
MSFT
Microsoft revenue for the quarter ending March 31, 2021 was $41.706B, a 19.09% increase year-over-year.
Microsoft revenue for the twelve months ending March 31, 2021 was $159.969B, a 15.34% increase year-over-year.
Microsoft reported that their cloud-computing product, Azure, grew sales 50% in the first three months of the year. The segment that includes Azure reported total revenue of $15.1 billion, up from $12.28 billion a year ago.
Microsoft’s “Productivity and Business Solutions” segment, like Microsoft Word and PowerPoint, reported revenue of $13.6 billion, which is up from $11.74 billion a year ago.
In the “More Personal Computing” segment, which includes Windows, Xbox, and Surface revenue, Microsoft reported revenue of $13 billion, up from $11 billion a year ago.
GOOGL
Alphabet revenue for the quarter ending March 31, 2021 was $55.314B, a 34.39% increase year-over-year.
Alphabet revenue for the twelve months ending March 31, 2021 was $196.682B, a 18% increase year-over-year.
Google reported net income of $17.93 billion, compared with net income of $6.84 billion, in the year-ago quarter. Overall revenue soared 34% to $55.3 billion.
SBUX
Starbucks revenue for the quarter ending March 31, 2021 was $6.668B, a 11.21% increase year-over-year.
Starbucks revenue for the twelve months ending March 31, 2021 was $23.843B, a 10.58% decline year-over-year.
SBUX reported that their sales rose 11% to $6.67 billion, mainly driven by a same-store sales increase compared with pandemic-related business disruptions in the fiscal second quarter of last year.
The company also raised its full-year fiscal 2021 revenue and EPS guidance.
Though SBUX had some hiccups with their year-over-year due to the pandemic, we believe SBUX is still a good investment and re-opening stock.
V
Visa revenue for the quarter ending March 31, 2021 was $5.729B, a 2.14% decline year-over-year.
Visa revenue for the twelve months ending March 31, 2021 was $21.354B, a 10.6% decline year-over-year.
Visa reported a fiscal second-quarter net income of $3.0 billion, compared with $3.1 billion a year earlier.
Visa’s revenue for the quarter dropped to $5.73 billion from $5.85 billion a year prior.
While the headline financials were down relative to a year earlier, Visa saw payments volume grow 11% in the March quarter, with processed transactions rising 8%.
Visa compared their fiscal second-quarter payment volume and processed transactions to the same period in 2019, which were up 16%. Visa believes this is a better comparisons to pre-pandemic levels, since part of last year’s March quarter was also impacted by COVID-19.
The pandemic has impacted spending trends, especially with international travel largely stalled, but Chief Executive Al Kelly said in Visa’s filing that “the recovery is well underway in a number of key markets.” Visa saw positive growth in credit transactions during the March quarter, as well as positive growth for card-present transactions.
Visa declined to offer an outlook for the full fiscal year, citing uncertainties in forecasting brought on by the pandemic.
Though V had some hiccups with their year-over-year due to the pandemic, we believe V is still a good investment and re-opening stock.
PINS
Pinterest revenue for the quarter ending March 31, 2021 was $485B
Pinterest revenue for the twelve months ending March 31, 2021 was $1.91B, a 13% increase year-over-year.
Pinterest Inc. on Tuesday reported 78% year-over-year revenue growth for the first quarter, but its user growth fell short of analysts’ expectations as COVID-19 pandemic restrictions eased.
Pinterest reported that its global monthly active users rose 30% year over year to 478 million. Some analysts predicted that number to be slightly higher than 480 million. There are also some people predicting that once the economy reopens, the number of monthly active users may decrease since less people will be on their phones. Because of this, PINS shares have sold off.
The company reported a first-quarter loss of $21.7 million in the year-ago period. However, revenue rose to $485.2 million from $271.9 million in the year-ago quarter.
The company did not provide a full second-quarter forecast. Chief Financial Officer Todd Morgenfeld said he expects global monthly active users to grow in the mid-teens globally but to remain about flat in the U.S. He also said the company expects revenue to increase about 105% year over year.
WM
Waste Management revenue for the quarter ending March 31, 2021 was $4.112B, a 10.27% increase year-over-year.
Waste Management revenue for the twelve months ending March 31, 2021 was $15.601B, a 0.73% increase year-over-year.
Jim Fish, Waste Management’s President and Chief Executive Officer, stated, “We had an exceptionally strong start to the year with first quarter adjusted operating EBITDA growth of more than 14% and adjusted operating EBITDA margin expansion of 100 basis points.”
The company said they achieved these results by generating strong yield, flexing down our cost structure, and executing on the integration of Advanced Disposal. With the company's solid performance and confidence in the strength of their business model, they are increasing their 2021 financial guidance that we provided in February for revenue, adjusted operating EBITDA and free cash flow.
AAPL
Apple revenue for the quarter ending March 31, 2021 was $89.6B
Apple revenue for the twelve months ending March 31, 2021 was $325B, a 10.5% increase year-over-year.
Apple delivered better-than-expected revenue across all of its product categories for the March quarter while boosting its buyback program by $90 billion and raising its dividend by 7%.
The company reported fiscal second-quarter net income of $23.6 billion, which is up from $11.2 billion a year earlier.
Apple’s revenue for the quarter rose to $89.6 billion from $58.3 billion. The revenue total was a record for a non-holiday quarter.
The company saw iPhone sales climb to $47.9 billion from $29.0 billion a year ago. The March quarter marked the first full quarter of availability for Apple’s iPhone 12 line.
Apple saw “actually a record number of upgraders” for a March quarter, Chief Executive Tim Cook said on Apple’s earnings call. While countries such as China are farther ahead in 5G penetration, many other regions aren’t, suggesting that “a lot of the 5G upgrades will be in front of us, not behind us.”
Apple declined to offer a traditional financial outlook. However, the company expects June-quarter revenue to grow “strong double digits” on a year-over-year basis.
Apple predicts that when the pandemic ends, “many companies will be operating in a hybrid kind of mode, and so it would seem that work from home and the productivity of working from home will remain very critical."
The company added $90 billion to its stock-buyback authorization and raised its dividend by 7% to 22 cents a share. Both are bigger increases than the company made a year ago, when it boosted its buyback program by $50 billion and upped its dividend by 6%.
FB
Facebook revenue for the quarter ending March 31, 2021 was $26.2B
Facebook revenue for the twelve months ending March 31, 2021 was $94.4B, a 9.8% increase year-over-year.
Facebook announced better-than-expected first-quarter results with a 48% revenue increase to $26.2 billion.
“We had a strong quarter as we helped people stay connected and businesses grow,” Chief Executive Mark Zuckerberg said in a statement announcing the results. “We will continue to invest aggressively to deliver new and meaningful experiences for years to come, including in newer areas like augmented and virtual reality, commerce and the creator economy.”
AMZN
Amazon AMZN reported first-quarter earnings of $8.11 billion from e-commerce and cloud computing.
Sales grew to $108.52 billion from $75.45 billion the year before. It was Amazon’s second consecutive quarter of more than $100 billion in revenue, after never previously hitting that mark, and the company expects to top the mark again in the current quarter.
MA
Mastercard revenue for the quarter ending March 31, 2021 was $4.16B
Mastercard revenue for the twelve months ending March 31, 2021 was $15.4B, a 0.1% increase year-over-year.
Mastercard reported first-quarter net income of $1.8 billion, which is up from $1.7 billion a year earlier.
Mastercard’s net revenue for the quarter rose to $4.2 billion from $4.0 billion, while analysts were projecting $4.0 billion.
The company expects a second-quarter revenue growth rate, in the high-20s (percentage range), or in the low-to mid-20s on a currency-neutral basis and excluding acquisitions.
Conclusion
We believe that all the stocks mentioned are still great stocks to invest and trade, even though some companies may have had some hiccups when compared to pre-pandemic years. Remember, sometimes when we look at the fundamentals of a company, we want to be forward-looking and see where the companies are heading. If you're going to invest in these companies, we recommend scaling into your positions slowly.
Looking at current market, it looks like many of our stocks are trending neutrally, and may continue doing so for the next couple of weeks. I also recommend waiting until all of the earnings have come out and observing how markets react. I am thinking that the market is keeping a close eye on rising interest rates, inflation, and tax. I would recommend being cautious as any "negative" news can spook the markets into a temporary sell-off.
If you already have shares as long-term holds, I wouldn't worry too much. However, if you have some Wheels, I recommend pairing some of your covered calls with some bear call spreads, which is taught in the Level 3 series.
Remember to keep a balanced portfolio. I don't want to see anyone with 90% of their portfolio in high-risk stocks like AMD and PINS, as it carries too much risk. Remember to allocate your portfolio with the 30/30/30/10 ratio. If you don't know what that is, please read the Level 1 FAQ.
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Have a great weekend everyone!
-Steve and the Call to Leap Team
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