Hey Wealth Builders!
Many tech stocks in the QQQ had a wonderful rally this week, while SPY stayed neutral, and DIA had an even further pullback. Let's take a look at the charts:
Here's SPY:
Here's QQQ:
Here's DIA:
I'm still adding shares of SPY and QQQ to my portfolio.
Technical Analysis 📈📉
V:
FinTech stocks took another beating this week. As we discussed last week, the Department of Justice is still looking into antitrust concerns with Visa and their relationships with other large financial companies.
On Wednesday, Amazon said that their company would stop taking payments from Visa credit cards in Britain from mid-January next year due to their high fees.
On Friday, Visa CFO, Vasant Prabhu stated, "We've resolved these things in the past and I believe we'll resolve them in the future. It is our expectation that there will be a resolution so that UK consumers are not impacted."
MA:
Being in the same FinTech space as Visa, MA also pulled back.
Remember that many companies in similar sectors tend to dance the same way on the charts.
As of now, I would pause on adding anymore shares since it seems like there has been so much negative news surrounding these payment stocks. I would just patiently wait until I see a strong upward change in trend.
Remember that these two companies make their money by charging around 1-3% per transaction. And if we think about it, these two companies are essentially a duopoly when it comes to the credit card space as the majority of credit card holders use these two brands the most.
I still have a bullish long-term stance on these companies. However, with the divergence on the charts with the S&P500 steadily growing, while these two stocks are slowly selling off, it shows that institutions are still iffy and that V and MA are not currently in favor by Wall Street.
SQ:
Here's SQ with it's sell-off too.
PYPL:
Here is PayPal. Again, let's just be patient and allocate our capital to other stocks that are in favor by Wall Street.
PINS:
If you are still in PINS, I recommend exiting your position by selling around the $50 strike. Looking at the charts, the stock is still in a downward trend with a strong resistance line denoted in orange.
AAPL:
AAPL finally broke out and reached some ATHs. For those of you who have sold covered calls on this stock and bought extra 25 shares on the side, you can now consider reentering by selling a CSP, buying 75 shares and selling another covered call, or just buy another 100 shares and sell another covered call. I am still selling covered calls on this stock, while adding long-term holds in my other accounts.
MSFT:
MSFT is holding strong above it's support line and making new ATHs.
GOOGL:
GOOGL is also in favor by Wall Street. I might add one more share to portfolio if it makes another ATH this upcoming week.
EL:
I'm still adding more shares of EL to my portfolio.
COST:
I added some COST shares to my portfolio around the $520 level. I may add some more shares if it rises up to around $540.
AMD:
My last honorable mention is AMD as it has still been on a rip up.
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: $337.54 Friday Close: $343.11 5-day change: 1.65%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $343.11 - Capital Needed: $34000.00 - Sell at the Expiration Date: 2021-12-10 - Select the Strike: $340 - Premium you'll receive: $445.00 - Cost Basis: $340.00 - $4.45 = $335.55
Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $343.11 - Capital Needed: $34311.00 - Sell at the Expiration Date: 2021-12-10 - Select the Strike: $345 - Premium you'll receive: $675.00 - Cost Basis: $343.11 - $6.75 = $336.36
AAPL Monday Open: $150.37 Friday Close: $160.55 5-day change: 6.76%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $160.55 - Capital Needed: $16000.00 - Sell at the Expiration Date: 2021-12-10 - Select the Strike: $160 - Premium you'll receive: $325.00 - Cost Basis: $160.00 - $3.25 = $156.75
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $160.55 - Capital Needed: $16055.00 - Sell at the Expiration Date: 2021-12-10 - Select the Strike: $162.5 - Premium you'll receive: $280.00 - Cost Basis: $160.55 - $2.80 = $157.75
AMD Monday Open: $148.00 Friday Close: $155.41 5-day change: 5%
Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $155.41 - Capital Needed: $15500.00 - Sell at the Expiration Date: 2021-12-10 - Select the Strike: $155 - Premium you'll receive: $658.00 - Cost Basis: $155.00 - $6.58 = $148.42
Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $155.41 - Capital Needed: $15541.00 - Sell at the Expiration Date: 2021-12-10 - Select the Strike: $160 - Premium you'll receive: $950.00 - Cost Basis: $155.41 - $9.50 = $145.91
NKE Monday Open: $169.70 Friday Close: $174.88 5-day change: 3.05%
Starting a New Wheel: Selling a Cash-Secured Put on NKE - NKE's Current Price: $174.88 - Capital Needed: $17000.00 - Sell at the Expiration Date: 2021-12-10 - Select the Strike: $170 - Premium you'll receive: $217.00 - Cost Basis: $170.00 - $2.17 = $167.83
Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $174.88 - Capital Needed: $17488.00 - Sell at the Expiration Date: 2021-12-10 - Select the Strike: $175 - Premium you'll receive: $425.00 - Cost Basis: $174.88 - $4.25 = $170.63
SBUX Monday Open: $112.12 Friday Close: $110.78 5-day change: -1.19%
Starting a New Wheel: Selling a Cash-Secured Put on SBUX - SBUX's Current Price: $110.78 - Capital Needed: $11000.00 - Sell at the Expiration Date: 2021-12-17 - Select the Strike: $110 - Premium you'll receive: $230.00 - Cost Basis: $110.00 - $2.30 = $107.70
Starting a New Wheel: Selling a Covered Call on SBUX - SBUX's Current Price: $110.78 - Capital Needed: $11078.00 - Sell at the Expiration Date: 2021-12-17 - Select the Strike: $115 - Premium you'll receive: $108.00 - Cost Basis: $110.78 - $1.08 = $109.70
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Peter
Q1: I am looking to sell a cash secured puts for PLTR as a way to buy the "dip." Do I lose any money on this strategy with the delta (besides the money being locked up)?
A1: We don't recommend doing a cash-secured put (CSP) on PLTR because it doesn't fit our investing criteria. We believe it is a risky trade. Consider MSFT, AAPL, SBUX and NKE instead. With that being said, you are free to do whatever you would like to do with your portfolio.
When selling CSPs and covered calls, the "delta" just tells you the percent chance of the underlying stock price hitting your strike price by expiration. For example: A delta 0.80 has around an 80% chance of the underlying stock price hitting your strike price by expiration vs. a delta 0.10 which has around a 10% chance. When selling a CSP, deltas show up as a negative number (-0.80). It is the same thing; 80%.
Q2: Is there a step by step pictorial on how to place a cash secured put on TD Ameritrade?
I am trying to put in a cash secured put for PLTR. I have a expiration date and strike price.
Do I choose sell to close? For order type, what price do I enter?
A2: Once you're logged in, scroll to our level 1 section. Find "Tutorials". Look under to find "See past videos". Click on "See past videos". Scroll down past "Ask Steve" section to the "Tutorials" section. Click on "The wheel strategy on AAPL using Thinkorswim" and the video should come up.
If you would like to sell a CSP, click on PLTR, go to the option chain, select your date, look on the RIGHT side, select a strike price, click on the bid price, review your order. Double check that you are SELLING, 1, PUT at your desired strike price. Review and submit.
Edwin
Q1: Hello - I just signed up for your course and love every part of it. As a person who has zero knowledge in this area, the course has been extremely beneficial.
I recently graduated from a school and am finally starting to make an income (about mid six figures). I have about 10,000 I can utilize to invest at the moment. Do you recommend utilizing all of this money on investments through a brokerage account? Or should I open a retirement account (ROTH IRA) and apportion some funds into that?
A1: We are happy to hear that our course has brought you value :)
Congratulations! That is wonderful news! This may sound overwhelming, but we recommend paying off any student loans that you may have and creating a 4-6 month emergency fund to cover your expenses. While you're doing this, you can consider slowly investing whatever you're comfortable with/can because you don't want to "miss out" on the potential gains.
In regards to brokerage accounts, we recommend having both a Roth IRA and a cash account. The reason for this is because a Roth IRA allows your money to grow tax-free. A cash account is beneficial because it is more liquid in a sense to where you can pull out money easily. It is important to mention that we are not tax advisors and we recommend seeking out professional tax services for these types of questions. You can consider maxing out your Roth IRA every year in addition to investing in your cash account! You can also do the wheel strategy in a Roth IRA too. Cool right?
Q2: Total newbie to all of this and finally am able to work and earn a living. At this point in time, I have about $4k I can utilize to invest. Moving forward, I can contribute up to $1k per month after all expenses are deducted from my paycheck. For a person in my shoes, what's the best strategy moving forward? Just a little confused because even with my $1k contributions in the CC strategy, the 2-3% gain is not that much.
A2: No worries! We were all newbies at one point! We believe a 2-3% return a month utilizing the wheel strategy is an excellent return. If you had a consistent 2% return a month, every month, that is a 24% return in a year. If you don't want to start the wheel, you can consider slowly investing in fundamentally strong stocks like MSFT or AAPL and ETFs that track the S&P 500 like SPY or VOO. Once you have 100 shares of a company, you can then consider trading the wheel. The "best strategy" comes down to whatever your risk tolerance is and what your financial goals are. Here at CalltoLeap we equip you with knowledge and show you tools that you can use to build your wealth over time :)
B Juice
Q: Hello, I am a new member. I’m saving to start at level one placing covered call options. My question is, while I’m saving capital, where is the best place to store it? Should I buy Apple stock until I obtain 100 shares? Should I invest in ETFs? Thank you.
A: Welcome to our wealth building community! What a wonderful question! There really isn't a right answer to this question, but let's look at our options!
An ETF that tracks the S&P 500 such as SPY currently costs $468. ETFs that track the S&P 500 such as SPY are essentially a "basket" of those 500 companies which slowly rise over time with respect to market conditions. As the S&P 500 rises, so does this ETF. Due to it being a collection of these companies, if one company does well, but another doesn't do too well, it won't have a dramatic movement in the ETF's price and can still overall be "up". For example, if AAPL drops $10, but COST goes up $20, as a whole, the S&P 500 is still doing well, therefore your SPY ETF is still rising.
On the other hand when we buy individual stocks such as AAPL, we are subject to the company's specific performance, bad news and if wall street is favoring them or not. For example, if AAPL has a miss and it causes a big sell off/correction in AAPL stock, all of the AAPL stocks you own will drop. AAPL could easily skyrocket too and gain faster than an ETF.
In summary, each option has its pros and cons. If you want to be more conservative, you can consider storing your money in an ETF. That way your risk is spread over multiple companies in the S&P 500. Individual stocks can rise faster than an ETF, surpassing the return on investment you would've had in an ETF. You can also consider alternating such as buying one AAPL and then buying 1 SPY or VOO. There is honestly no perfect formula.
You can get to 100 shares, B Juice! Patience, discipline and consistency :)
Kiki
Q: Hi there. this is my first time set up a covered call. I am not sure if I am doing it right. I am using TDAmeritrade think or swim website where can I email you the screenshot of the option trade because it is expiring tomorrow in case I am doing it wrong I want to make sure I have the fund to pay it. Please advise.
A: Congratulations on your first covered call! So when we sell covered calls, we are required to first purchase 100 shares of a company. Once we have 100 shares of a company, we then select an expiration date in the option chain and then a strike price. When selling covered calls, we look on the LEFT side of the strike price (once we've selected an expiration date and the table pops open) and then we select "bid" for whatever strike we want to choose. We then select review and make sure we are SELLING, 1, call at our desired strike price and we select "market", to get our trade executed as fast as possible. If we traded this correctly, we should already have 100 shares, therefore we won't "need any funds" to for pay it because we already own the shares. Two things can then happen at expiration.
If at expiration the underlying stock price is higher than your strike price, your shares will get called away. If at expiration the underlying stock price is lower than your strike price, you keep your shares. In both scenarios you do not need to deposit any funds.
If you would like to see how we trade the wheel strategy on ThinkorSwim, consider looking at our tutorial videos. Follow these steps below to reach them:
Once you're logged in, scroll to our level 1 section. Find "Tutorials". Look under to find "See past videos". Click on "See past videos". Scroll down past "Ask Steve" section to the "Tutorials" section. Click on "The wheel strategy on AAPL using Thinkorswim" and the video should come up.
Tim
Q: Hi Steve, I was wondering about the taxes. Let's say I sell covered call and it expires worthless. The premium I got will be taxed at sort of like short term capital gain tax or is there special tax?
A: It is important to mention that we can't advise on taxes because we are not tax advisors. Therefore, we recommend reaching out to professional tax services to answer these types of questions. With that being said, wheel premium will be taxed as short-term capital gains in a cash account, just like regular income.
Mauro
Q: Are taxes automatically deducted when I sell stocks/options for capital gains?
If so, will I be taxed again when filing my taxes? Let’s say I’m going to be taxed 24% on a trade (short term capital gain). If I made $100 of capital gains, should I set aside $24 for taxes? Or will profits already be $76, meaning they were taxed when they were sold? If that’s the case, will I be taxed again even though I was already taxed?
A: Taxes are not automatically deducted from your premiums. At the end of the year, add up all the premium and capital gains you made from your cash account, as this will all be considered taxable income. Please remember to consult with a tax specialist as we are not tax advisors.
Earnings
HD:
Home Depot reported third-quarter sales growth of $36.82 billion, which is a 9.8% year-over-year increase! Many analysts were anticipating for $35 billion.
Customer transactions for the quarter fell 5.5%. However, comparable sales increased 6.1%, and comparable sales in the U.S. rose 5.5%.
Home Depot's financial results stayed strong due to a strong housing market. Consumers have been investing more as home prices climb, rising nearly 20% compared with a year ago.
Home professionals' demand for materials has been rising, which has helped offset lower demand from do-it-yourself projects.
HD also declared a third quarter cash dividend of $1.65 per share. The dividend is payable on December 16, 2021, to shareholders of record on the close of business on December 2, 2021. This is the 139th consecutive quarter the company has paid a cash dividend. I anticipate that this dividend will rise sometime next quarter as this has been the pattern for HD for several years.
Here is a 5-year chart of HD:
Here is a short-term look of their performance:
It seems that HD might be running a little high right now. However, I am still sprinkling a couple of shares to my portfolio since I have a long-term bullish stance.
LOW:
Lowe's reported third-quarter sales growth of $22.92 billion, which is a 2.7% year-over-year increase. Analyst were anticipating for $21.99 billion.
Comparable sales increased 2.2%, while comparable sales for the U.S. home improvement business rose 2.6%. U.S. comparable sales increase on a two-year basis of 33.7%.
The company also declared a quarterly cash dividend of $0.80 per share, payable February 2, 2022, to shareholders of record as of January 19, 2022.
Lastly, Lowe's plans to repurchase approximately $3 billion in shares in Q4. and raised sales guidance to around $95 billion !
Here is a 5-year chart of LOW:
Here is a short-term look of their performance:
Similar to HD, I am also adding some more shares to my portfolio.
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 The Trend Be Your Friend
Market sentiment is still looking very positive. Remember to let the trend be your friend. If you see your favorite stocks rising with the majority of the S&P500, don't be afraid to ride the wave up. If you see stocks going in a diverging route, you might want to hold off with investing in them for now. Remember that institutions with multibillions of dollars are truly the ones moving the markets and we don't want to go against their trend.
You are doing wonderful! Stay disciplined and patient. My team and I are so proud of you! 😀
Have a wonderful Thanksgiving with your loved ones! 🦃
-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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