Hey Wealth Builders!
We had another week of great earnings! We had a mini dip, followed by quick retracement.
Here's SPY:
Here's QQQ:
Here's DIA:
With the positive earnings growth I've been seeing in the past few weeks, I believe we are in a great position to slowly add more of these ETFs into our portfolios.
Technical Analysis 📈📉
WM:
WM is still in a strong upward trend, despite it's after earnings selloff. I added more shares to my portfolio this week.
FB:
Meta seems to have found some footing around the 200 EMA. I am planning on slowly adding more shares next week.
ETSY:
The holiday season is coming and I see companies like ETSY benefitting in this upcoming quarter. I am adding more shares to my position.
EL:
After an amazing report, EL is dominating the online space with selling products from brands like Estee Lauder, Clinique, Aramis, Prescriptives, Lab Series, Origins, MAC, and Bobbi Brown, to name a few. I am adding more shares to my portfolio.
AMD:
AMD is currently in a strong uptrend. If you are selling covered calls on this stock, I would recommend to buy a couple of extra shares on the side in case the stock flies through your strike. Remember to not go overboard with these highly volatile semiconductor stocks as they can also reverse quickly from any negative news.
COST:
Again, COST has high conviction from the large institutions. I am also adding more shares to my portfolio.
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. 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).
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 and PINS, 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 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: As I mentioned before in the previous weeks, 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: $337.30
Friday Close: $336.72
5-day change: -0.17%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT
- MSFT's Current Price: $336.72
- Capital Needed: $33500.00
- Sell at the Expiration Date: 2021-12-03
- Select the Strike: $335
- Premium you'll receive: $508.00
- Cost Basis: $335.00 - $5.08 = $329.92
Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $336.72 - Capital Needed: $33672.00 - Sell at the Expiration Date: 2021-12-03 - Select the Strike: $340 - Premium you'll receive: $758.00 - Cost Basis: $336.72 - $7.58 = $329.14
AAPL
Monday Open: $151.41
Friday Close: $149.99
5-day change: -0.93%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL
- AAPL's Current Price: $149.99
- Capital Needed: $14900.00
- Sell at the Expiration Date: 2021-12-03
- Select the Strike: $149
- Premium you'll receive: $242.00
- Cost Basis: $149.00 - $2.42 = $146.58
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $149.99 - Capital Needed: $14999.00 - Sell at the Expiration Date: 2021-12-03 - Select the Strike: $150 - Premium you'll receive: $287.00 - Cost Basis: $149.99 - $2.87 = $147.12
AMD
Monday Open: $137.70
Friday Close: $147.89
5-day change: 7.4%
Starting a New Wheel: Selling a Cash-Secured Put on AMD
- AMD's Current Price: $147.89
- Capital Needed: $14700.00
- Sell at the Expiration Date: 2021-12-03
- Select the Strike: $147
- Premium you'll receive: $578.00
- Cost Basis: $147.00 - $5.78 = $141.22
Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $147.89 - Capital Needed: $14789.00 - Sell at the Expiration Date: 2021-12-03 - Select the Strike: $148 - Premium you'll receive: $633.00 - Cost Basis: $147.89 - $6.33 = $141.56
NKE
Monday Open: $176.35
Friday Close: $169.09
5-day change: -4.11%
Starting a New Wheel: Selling a Cash-Secured Put on NKE
- NKE's Current Price: $169.09
- Capital Needed: $16500.00
- Sell at the Expiration Date: 2021-12-03
- Select the Strike: $165
- Premium you'll receive: $217.00
- Cost Basis: $165.00 - $2.17 = $162.83
Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $169.09 - Capital Needed: $16909.00 - Sell at the Expiration Date: 2021-12-03 - Select the Strike: $170 - Premium you'll receive: $430.00 - Cost Basis: $169.09 - $4.30 = $164.79
SBUX
Monday Open: $116.52
Friday Close: $111.72
5-day change: -4.11%
Starting a New Wheel: Selling a Cash-Secured Put on SBUX
- SBUX's Current Price: $111.72
- Capital Needed: $11100.00
- Sell at the Expiration Date: 2021-12-03
- Select the Strike: $111
- Premium you'll receive: $174.00
- Cost Basis: $111.00 - $1.74 = $109.26
Starting a New Wheel: Selling a Covered Call on SBUX - SBUX's Current Price: $111.72 - Capital Needed: $11172.00 - Sell at the Expiration Date: 2021-12-03 - Select the Strike: $112 - Premium you'll receive: $221.00 - Cost Basis: $111.72 - $2.21 = $109.51
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Aaron
Q: I saw the 30/30/30/10 recommended portfolio allocation, but I don’t know how tell the difference between strong dividend stocks/ETFs and growth stocks.
A: No worries! So strong dividend stocks are companies that have great technicals and fundamentals and offer a dividend. These are companies like MSFT and AAPL. Their market cap is larger too. We typically like to invest in ETFs that track the S&P 500. We consider these, strong. ETFs like SPY and VOO. A growth stock is a stock with a lower market cap that has room to "grow". A company that has been doing well with strong technicals/fundamentals, but perhaps does not pay a dividend. An example is AMD/PYPL/SQ. Because these are "growth stocks" they're more volatile. They have significant price movements.
George
Q: Hi Steve, I recently sold a CC on NKE, which expired on 10/29. Initially, NKE was at $149. My strike price was $160, with a premium of $99. At expiration, NKE was at $167. So I collected the premium, but would I not also get an extra $1,100 in capital gains? I am using TD Ameritrade for my brokerage account, and I'm confused on where to look for my profits. When I look under my transactions, it shows the $99 premium but not the capital gains. Please let me know if I am looking in the wrong spot.
A: Great job! The $1,100 capital gains should be in your brokerage account. Check to see your portfolio value history and you will see that you gained $1,100 capital gain with a $99 premium.
Juliette
Q: When you post your trade recommendations on Sunday and you base yourself at Friday's close prices and when the stock opens on Monday and the stock price drops significantly (ie NKE), we should adjust the strike price accordingly to what it is currently trading correct?
A: Correct. For example, if the stock is at $100 at Friday's close and we recommend selling a covered call at $101 on Monday and on Monday it drops down to $95, you can consider selling a $96 covered call (If you bought your shares for $95). It all depends on what you purchased your stocks for and what your goals are.
For CSPs, if we recommend $99 on Monday because the stock closed at $100 on Friday and then it drops on Monday to $95, you can consider selling a CSP for $94. Same concept, different numbers because of price fluctuations!
We like selling NTM options since the premiums are typically highest around those levels.
George
Q: I am using Vanguard and it only allows me to use limit orders for online trading, should I choose the bid or the ask price for the order?
A: Vanguard should be able to let you purchase with a market order. If you choose to do a limit order, you can select closer to the "bid" price to get your order filled quicker.
Tracy
Q: Hello! I am a brand new premium member. I have been using TD Ameritrade for some time now and have a fair amount invested in a mutual fund (TRMCX) as a long-term hold. I am trying to decide now if I should take out a portion to sell a covered call (it will be my first) or if I should leave what I have invested there and save up cash separately for my first covered call. I would love your advice. Thank you!
A: Welcome to our wealth building community! We are excited to be a part of your financial freedom journey! It is completely up to you! You can consider selling some of your mutual fund shares and saving up your own capital to start the Wheel. We typically don't like mutual funds as fund managers tend to charge many fees with these investments.
Earnings
DIS
Disney reported revenue of $18.5 billion, which is up 26% year-over-year and 5.7% quarter-over-quarter.
The company reported their Direct to Consumer segment revenue, which includes Hulu, ESPN and Disney+, of $4.6 billion for the quarter, which is a 38% increase year-over-year.
Disney reported 118.1 million subscribers to its core streaming service, which is up 2.1 million, or 1.8% from the previous quarter, after subscribers grew 9.2% and 8.6% in the preceding quarters. Many analysts on average expected 125.3 million subscribers. The addition of only 2.1 million subscribers is down from the 12.6 million added the previous quarter.
The company reported their Disney Parks, Experiences and Products quarterly revenue of $5.5 billion compared to $2.7 billion in the year-ago quarter. This is a 99% increase.
Disney’s total revenue for 2021 fiscal year comes at $67.42 billion, which is a 3% increase.
Here's a 5-year chart of DIS:
It's not bad. Yet, it's also not that great compared to the S&P as a whole.
Though I do feel that Wall Street is a bit harsh, I still think that Disney's adaptive ability and their Disney+ subscriber growth are remarkable, especially with having 118 million subscribers in their second year of having this platform.
Looking at the short-term chart, I do believe that the sell-off is a bit of an overreaction. However, it's possible that if DIS continues to sell off, it could fill in the previous gap from last winter and drop to somewhere around $156. I would wait a couple of days to see if the price consolidates and finds footing before deciding to add on more shares.
PYPL
PayPal reported revenue of $6.18 billion from $5.46 billion. Analysts had been expecting $6.23 billion.
During the third quarter, PayPal processed $310 billion in total payment volume (TPV), or the value of payments that go through their payment system, which is up 26% from a year earlier. Analysts had been expecting $312.5 billion in TPV.
Venmo processed $60 billion in TPV, which is up 36% from a year earlier.
Lastly, PayPal added 13.3 million new active accounts and ended the quarter with a total of 416 million subscribers!
This week, PayPal also announced that U.S. Venmo users will have the option to pay for Amazon purchases with the service starting early next year. This is wonderful news because we know that if payment is made easier on a platform, consumers are more willing to spend money. I see this benefitting both PayPal and Amazon's top line next year.
Here is PayPal's 5-year chart:
You can see that this company has had amazing growth, even with all the volatility along the way.
I am still very bullish on PYPL. After announcing their earnings this week, there was a major selloff that broke through the $210 level. Like with the stocks that had major selloffs the past couple of weeks, let's be patient and see if the stock finds footing and makes newer highs before adding to our positions. If you want to buy a little bit at these levels, I wouldn't blame you. I did buy a couple of shares around $205 since I believe the stock is oversold.
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.
Let Your Winners Win
I often get questions from you where you ask me why I like to buy stocks when they are at their ATHs. Well, if you think about it, aren't many stocks always hitting their ATHs every month? This is a signal to us that institutions are putting their capital into these companies or ETFs and that it would also be a good opportunity to follow along. This is also why I have the 5-10% rule of scaling your positions where you can focus on adding to your winning positions as they progress higher 5-10%.👍
Stay patient! I do anticipate that the markets will continue to rise until the end of the year. 😀
-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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