🔒Membership Positions

Hey Wealth Builders!

We had another crazy week in the stock market with us ending in the red again.

Let's take a look at the overall markets:

Here's SPY:

Here's QQQ:

Here's DIA:

Technical Analysis 📈📉

SPY:

This week, the Federal Reserve stated that they were going to increase interest rates by 50 basis points. Interestingly, the markets rallied after the announcement and dropped back down the day after. Looking at the technicals, SPY is still holding around the $411 level. If selling continues, we could fall to the $404 level, which are the levels we were at back in May 2021.

QQQ:

QQQ could drop down to the $297 level.

DIA:

DIA could drop back down to the $322 level.

NKE:

After Adidas ADDYY reported disappointing earnings and had a decline in their stock price, athletic apparel companies, LULU and NKE, followed suit with the sell-off. NKE broke its long-term support line, as it did back in the March 2020 crash. I will keeping an eye on this stock to see if institutional traders put their money back into this company again.

WM:

WM is still holding strong as it seems to be trading between $155 and $168.

Trade of the Week:

Similar to last week, I don't recommend starting any new wheels as we are still experiencing major volatility in the markets.

However, you can still sell OTM covered calls on your previously owned shares with an expiration around 6-8 weeks out for larger premiums due to the higher extrinsic (time) value.

I am still setting up bear call spreads during this fearful environment to take advantage of the high IV. Stay tuned for the Premium Membership Post.

Ask Steve 💭

Let's see what some of our members asked this week. Here are the top questions we received:

Skyler

Q: Hi, i recently just signed up and paid for the standard monthly membership. i read through the FAQ and i'm submitting my coaching question so you can verify my membership tier. My coaching question is: after selling a cashed secured put or covered call, do you lose any premium by buying back the same exact option (considering that the value of the option does not drop 80-90%)? i'm still trying to understand how buying back and rolling out works, so i would appreciate more clarity.

A: Welcome to the community, Skylar! Buying back and rolling out is more of an advanced level 1 trade. If you are just starting out and have never traded options before, we recommend letting your contracts go to expiration, so you see how it works. Once you’re comfortable and ready to buy back and roll out, you can consider doing this strategy. To answer your question, contracts are affected by the Greeks and price movements.

For example, let’s say you sell a covered call on a stock at the strike price of $101 while it is currently trading at $100. Let’s say you get a premium of $250. If the stock rises to $115, your contract will be MORE expensive to buy back. It may now cost $600 to buy back. However, if the stock drops below $100 to let’s say $90, your contract will cost less than what you received in premium to buy back. It may now be work $50. If you buy it back for $50 and you sold it for $250, you lock in a $200 profit.

This movement is the opposite with cash-secured puts (CSPs). As the stock drops, the contract becomes MORE expensive to buy back. As the stock rises, it costs LESS to buy back.

Buying back and rolling out can be a confusing topic at first. We recommend watching our video multiple times as repetition is key. When we buy back and roll out, our goal is to purchase our contracts for a lower price than what we paid for it, and then sell them for an even higher price by selling our contracts to a further expiration date.

Take your time with this concept and consider paper trading first until you’re comfortable with it. Keep us posted with your trading.

Daniel

Q: New to Call to Leap. I have 20k in my cash account. Looking into getting started selling wheels. I know its a bearish market right now but where should I start?

A: Welcome to our wealth building community! Since we are in a neutral to bearish market, we don't recommend starting any new wheels at the moment. You can, however, take some time to go over more content in the membership, such as reading past membership posts, watching archived videos, and joining our Discord to talk to our community members.

If you don't mind the volatility, you can consider investing 1-5 shares in an ETF that tracks the S&P500, such as SPY.

Fernando

Q1. I have a CSP for AMD with strike price at 97. It is currently 95.63. Is there a way to set up a Buy To Close order if the stock reaches 97 or more? I am using Schwab.

A: We are not sure how much you sold your CSP for and what price it was trading at when you did sell it, but typically, you can set a limit buy order to buy your contract back. For example, let's say you sold a CSP for $500 in premium and the price of the stock started to rise. Let's also say you want to lock in $200 in profit. You can set a limit buy order for your contract at $300, which will buy your contract back for $300. This will net you $200 in profit.

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.

Earnings Reports 📰

Many companies delivered their quarterly reports this week. To be responsible investors, it is important that we have an idea of how well the companies are doing in our portfolios and if they are increasing their revenue on a consistent basis. This will help ease our stress as it helps us better understand which companies are doing well in the midst of all these economic factors the markets are experiencing.

AMD:

Total quarterly revenue was $5.9B from $3.4B and increased by 71%.
Quarterly revenue from their Computing and Graphics segment was $2.8B from $2.1B and increased 33%. AMD said that the increase was driven both by central processors and graphic processor sales, and that the average sales price for Ryzen processors rose during the quarter.
Quarterly revenue from their Enterprise, Embedded and Semi-Custom segment $2.5B from $1.3B and increased by 88%. AMD said the rise was driven by higher server processor sales as well as semi-custom sales, which are the chips that go into the heart of game consoles like the PlayStation 5. Lisa Su stated, "Sales for this game console generation continue to outpace all prior generations, and we expect 2022 to be a record year for our semi-custom business."
AMD completed the acquisition of Xilinx in February. Quarterly revenue from Xilinx was $559M. AMD said that its results included six weeks of revenue from the deal, and that without Xilinx sales, revenue would have only increased 55% year-over-year to $5.3 billion.

Here is a graph provided from AMD's investor relations page that illustrates the company's revenue trend over the past several quarters:

Looking at the numbers, I am extremely impressed to see how much AMD is progressing. If we weren't in an uncertain market, I would want to purchase more shares at the current levels. However, I would wait to see if the stock can break out of the resistance line before making any decisions.

Remember that AMD is in the semiconductor space and does not pay a dividend. From past experience, there is extreme volatility in this stock, which is why the premiums are relatively much higher.

Like last week, I am going to say this stock is a hold for now. Once we get past the increase in interest rates, I expect this stock to start moving back up.

SBUX:

Total quarterly revenue was $7.6B from $6.7B and increased 14.5%.
Quarterly revenue from the North America segment was $5.4B from $4.6B and increased 17%
Store count from the North America segment was 16,926 from 16,701 and increased by 1%
Quarterly revenue from the International segment was $1.7B from $1.6B and increased 4%
Store count from the International segment was 17,704 from 16,242 and increased by 9%
Quarterly revenue for the Channel Development segment was $463.1M from $369.9M and increased by 25%. Note that this segment encompasses sales of packaged coffee, tea and ready-to-drink beverages to customers outside of its Company-operated and licensed stores.
Global comparable store sales increased 7%, driven by a 4% increase in average ticket and a 3% increase in comparable transactions.
North America and U.S. comparable store sales increased 12%, driven by a 7% increase in average ticket and a 5% increase in comparable transactions
International comparable store sales decreased 8%, driven by a 5% decline in average ticket and a 3% decline in comparable transactions; China comparable store sales decreased 23%, driven by a 20% decline in comparable transactions and a 4% decline in average ticket
International and China comparable store sales include the unfavorable impact of approximately 3% and 4%, respectively, from lapping prior-year value-added tax (“VAT”) exemptions in China
The company opened 313 net new stores in Q2, ending the period with 34,630 stores globally: 51% company-operated and 49% licensed.
“We are single-mindedly focused on enhancing our core U.S. business,” interim Chief Executive Howard Schultz said in a statement. “Record” demand and changes in customer behavior are accelerating store-growth plans, mostly by adding “high returning” drive-through locations, Schultz said.

Though SBUX had an increase of $1B in their top-line revenue, it seems like there might still be some bumpy roads ahead with their stores in China, in particular with the lockdown that is going on right now.

I personally don't think SBUX will rise in price from now until their next quarterly report or if there is some good news that come out about COVID cases decreasing in China.

Also, looking at the technical charts, it looks like SBUX is still on its downward trend and that institutions are not favoring the stock at the moment.

If you have some wheels on this stock with a cost basis of above $100 and want to exit your positions, you can consider selling strike prices that around $10 OTM (higher than a 10% increase of the current stock price), or around the $86 strike, 4-6 weeks out. By doing so, you must be willing to sell your shares at the determined strike price by expiration. If you sell closer NTM, you will be given a higher premium, but have a higher chance of getting your shares called away. If you are called away by expiration, you can use the realized loss to offset your gains for the end of the year, which reduces the amount of taxes you owe when trading in your taxable brokerage account.

If you have 200 shares, you can even consider splitting up your trade by only selling 1 contract NTM and letting the other 100 shares stay free and not contractually bound.

If you don't mind holding onto the shares, that is totally fine too since you can continue to collect quarterly dividends. Again, I don't think the stock price is really going to go anywhere in the short-term.

I personally recommend splitting the shares up, so I can free up some cash to utilize somewhere else.

I understand that it's sometimes hard to "break up" with a stock as their are certain emotional ties we have with our investments. However, realize that almost all professional traders and investors utilize this strategy each year as a way to offset their taxes.

Steve's Thoughts:

I understand that this market volatility is scary, especially for new investors that have been in the markets for less than a year or two.

Understand that many of these price fluctuations are due to algorithmic trading, which are often times trying to "shake out" retail investors and trigger their stop-loss orders. These broad-base sell-offs often don't have anything to do with companies' fundamentals and base their buying and selling decisions on technical patterns.

Also know that many large institutional investors trade on margin, which is scary for them since they can lose significant sums of capital with a broad-base sell-off. To protect themselves and their clients, they must sell off some assets to protect their investments from getting margin-called.

For me, this is wonderful news since we have evidence that many companies are still delivering great numbers and the markets are still in a holding pattern, which gives us more time to allocate more capital to deploy later on once the markets decide to rise again. (And trust me, the markets WILL rise again.)

For many other retail investors who may not have a stock market education, this volatility is most likely terrifying for them since they are most often only focused on the short-term price action of the markets.

Like with all things in life, don't worry about things you can't control, such as the price movement in the markets. What we can control are our emotions, and learn to practice patience and discipline.

Right now, I recommend to continue to stick to the plan:

Keep depositing money into your account each week/month
Keep selling OTM calls against your previously owned shares
Keep collecting dividends
Let your deposits, premiums, and dividends stay as cash until we have a confirmed uptrend in the markets again.

I know I sound like a broken record, but stay patient, everyone! Once we see some positive news on inflation decreasing, I expect the Federal Reserve to not have much reason to raise interest rates, which in turn will help the markets start to retrace back up.🙂

Have a great 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.