Hi Everyone!
Looks like we had a quiet week as many of our favorite stocks trended neutrally.
Here's a snapshot of the overall market:
It looks like SPY trended sideways...
While some of our favorite tech stocks in the QQQ are still trying to climb back out of it's pullback.
Comparing Portfolios
Like what I've been writing about in the past several weeks, make sure that you have a balanced portfolio. Need some examples? Let's take a look at some sample portfolios and see what is considered as high risk and low risk.
High Risk $100,000 Portfolio:
50% Growth Stocks
$10,000 ROKU
$10,000 ETSY
$10,000 CHWY
$10,000 TSLA
$10,000 AMZN
20% Steady Dividend-Pay Stocks/ETFs
$10,000 HD
$5,000 WM
$5,000 V
30% Wheel Strategy
$10,000 PINS
$20,000 AMD
[20% Margin]
$20,000 LEAPS
Low Risk $100,000 Portfolio:
30% Growth Stocks
$5,000 PYPL
$5,000 ETSY
$5,000 CHWY
$5,000 EL
$5,000 SQ
$5,000 MA
30% Steady Dividend-Pay Stocks/ETFs
$5,000 HD
$5,000 WM
$5,000 V
$5,000 COST
$5,000 DIS
$5,000 SPY
30% Wheel Strategy
$20,000 MSFT
$10,000 AMD
10% Cash/LEAPS
$5,000 Cash
$5,000 SBUX LEAPS
[30% Margin]
$15,000 AMD Bear Call Spreads
$15,000 AAPL Bear Call Spreads
I totally understand that having a lot of growth stocks during a bull market is fun! However, I encourage you to make sure to balance your portfolio so you aren't overweight in investments that are too volatile for you to emotionally handle.
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. If you were assigned your 100 shares from your cash-secured put, you can sell a call against your shares and convert your trade into a covered call trade.
If you entered your Wheel on PINS or AMD at a much higher price, there are some options you can consider:
Stay patient and let the stock retrace. You can consider selling a call against your shares around 2-3 months out, rather than our typical 4-6 weeks out, at around the same price that you purchased your shares.
You can consider selling a call against your shares around 4-6 weeks out at around the bottom range of your cost basis.
You can consider selling a call against your shares around 4-6 weeks out at around 1-5 strikes below the bottom range of your cost basis. Yes, you will take a loss on your trade, but you can free up capital to move to another stock that is in favor by Wall Street. This like breaking up with your girlfriend or boyfriend. It hurts in the beginning, but you sometimes may want to move on to another person.
For me personally, I am going with options 1 and 2 and will continue to lower the cost basis of my shares, even if it might be around $50 per contract. I don't mind being patient with these stocks since I have Wheels on MSFT, AAPL, and NKE still running on the side.
Keep in mind that even though PINS and AMD have fallen pretty fast, they can also retrace back up quickly. I am still very bullish on these companies in the long-run due to their fantastic numbers.
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.
PINS and AMD
If you want to still trade the Wheel on PINS and AMD, please keep in mind that these stocks are very volatile. We may recommend selling further OTM strikes for your CSPs, around 3-6 strikes away to play it more conservatively. Of if you just want to play it safe, you can just sit this one out for now.
Here are some trade recommendations and see what fits your personal risk-tolerance:
MSFT: Monday Open:$245.98 Friday Close:$245.17 Change: -0.33%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $245.17 - Capital needed: $24,500.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $245.00 - Premium you'll receive: $572.50 - Cost basis: $245.00 - $5.72 = $239.28
Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $245.17 - Capital needed: $24,517.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $250.00 - Premium you'll receive: $355.00 - Cost basis: $245.17 - $3.55 = $241.62
AAPL: Monday Open:$126.82 Friday Close:$125.43 Change: -1.1%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $125.43 - Capital needed: $12,500.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $125.00 - Premium you'll receive: $315.00 - Cost basis: $125.00 - $3.15 = $121.85
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $125.43 - Capital needed: $12,543.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $130.00 - Premium you'll receive: $152.50 - Cost basis: $125.43 - $1.52 = $123.91
AMD: Monday Open:$74.22 Friday Close:$77.17 Change: 3.97%
Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $77.17 - Capital needed: $7,500.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $75.00 - Premium you'll receive: $193.50 - Cost basis: $75.00 - $1.94 = $73.06
Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $77.17 - Capital needed: $7,717.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $77.50 - Premium you'll receive: $278.50 - Cost basis: $77.17 - $2.79 = $74.39
NKE:
Monday Open:$136.33 Friday Close:$132.66 Change: -2.69%
Starting a New Wheel: Selling a Cash-Secured Put on NKE - NKE's Current Price: $132.66 - Capital needed: $13,000.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $130.00 - Premium you'll receive: $234.50 - Cost basis: $130.00 - $2.34 = $127.66
Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $132.66 - Capital needed: $13,266.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $135.00 - Premium you'll receive: $221.00 - Cost basis: $132.66 - $2.21 = $130.45
PINS: Monday Open:$57.50 Friday Close:$60.86 Change: 5.84%
Starting a New Wheel: Selling a Cash-Secured Put on PINS - PINS's Current Price: $60.86 - Capital needed: $6,000.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $60.00 - Premium you'll receive: $274.50 - Cost basis: $60.00 - $2.75 = $57.26
Starting a New Wheel: Selling a Covered Call on PINS - PINS's Current Price: $60.86 - Capital needed: $6,086.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $62.50 - Premium you'll receive: $249.50 - Cost basis: $60.86 - $2.50 = $58.37
SBUX: Monday Open:$111.22 Friday Close:$110.92 Change: -0.27%
Starting a New Wheel: Selling a Cash-Secured Put on SBUX - SBUX's Current Price: $110.92 - Capital needed: $11,000.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $110.00 - Premium you'll receive: $217.50 - Cost basis: $110.00 - $2.17 = $107.83
Starting a New Wheel: Selling a Covered Call on SBUX - SBUX's Current Price: $110.92 - Capital needed: $11,092.00 - Sell at the Expiration Date: 2021-06-18 - Select the Strike: $115.00 - Premium you'll receive: $105.50 - Cost basis: $110.92 - $1.06 = $109.86
Earnings
Whoa! Let's take a look at some report cards that came out this week!
HD
Home Depot reported fiscal first-quarter profit and sales that surpassed expectations! Net income for the quarter to May 2 was $4.15 billion, which is up from $2.25 billion, in the year-ago period. Sales grew 32.7% to $37.50 billion, and U.S. same-store sales increased 29.9% to beat expectations of a 23.5% rise. Online sales grew by 27%. More than half of digital orders were fulfilled through stores.
The rising housing market may have helped fuel this growth, although soaring lumber prices and higher interest rates have dampened sales of newly built homes in recent months.
CEO Craig Menear stated that “The current shortage of new housing clearly is helping to drive improvements in the home values, which is a good thing for spending in the home."
Home Depot didn't release an outlook for fiscal 2021.
Here's a 5-year look at how much the stock has grown due to its consistent growing revenue:
Conclusion
We believe that HD is still a great long-term investment. This company is part of the S&P500 and DOW30 and pays a dividend. I believe that people are going to continue to fix up their homes with their DIY projects. I am personally going to be adding more shares to my portfolio.
As always, remember to keep a balanced portfolio with the 30/30/30/10 ratio and see if the stocks you are investing in is something you believe in and fits your own risk tolerance.
AMD News
This week, AMD announced that they were initiating a $4 billion stock buyback plan, which is its first repurchase authorization since 2001. Whenever there is a stock buyback plan, it usually indicates the company's confidence in the future of their business.
CEO Lisa Su stated, “Our strong financial results and growing cash generation enable us to invest in the business and begin returning capital to our shareholders."
Accountability Officer
Just checking in. Are you keeping up with your 2021 investing goals? To be a good investor and make sure you're on track to becoming financially free, let's see if you are doing the following:
Automatically depositing money into your brokerage account every two weeks or month
Keeping track of earnings reports and only investing in companies you understand and believe in (and not investing based off of hype)
Reinvesting your Wheel premiums, dividends, and/or account deposits into long-term holding stocks to compound your portfolio
It's hard to see it now, but it's these small habits that you have that will create big changes in the future.
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.
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. 😊
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.
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.
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