Hey Wealth Builders!
We had another week of great earnings! Here's a look at the markets:
Here's SPY:
Here's QQQ:
Here's DIA:
Again, I've been adding more shares of these ETFs to my portfolio. Are you accumulating more?
Technical Analysis 📈📉
V
There was a big rally for V on Friday. Zooming out, I see that V is ready for retracement after several days of selling off. I still like the company's fundamentals, even though there have been some "negative" news surrounding the company. The U.S. Justice Department is probing Visa's relationships with large fintech companies as part of its antitrust investigation. Antitrust investigators are looking into the financial incentives that Visa gave Square, Stripe, and PayPal.
If V continues to sell off and breaks the support line, I wouldn't be too surprised if the stock dropped to around the $200 level. If you feel comfortable, you can add a couple more shares here and possibly keep some cash on the side if you want to add some more shares later. If you want to adhere to the 5-10% investing guideline, you can wait until V retraces above your entry point.
MA
Similar to V, MA has a similar pattern.
SBUX
SBUX finally broke out with a bullish candlestick. This is a great example of how some companies can sell off right after earnings and retrace out of nowhere!
ADBE
You see the same pump and dump action for ADBE. Look at that quick retracement!
PYPL
I am tempted to buy some PayPal since it finally kissed the $225 level. However, I still want to wait until earnings to see their numbers and how Wall Street reacts. If there is a negative reaction, it's possible that PYPL drops to around $210.
NKE
Again, NKE has been making more highs. I am still selling covered calls on this stock.
MSFT
MSFT has also been climbing up the mountain.
AMD
As the same with AMD.
AAPL
I see AAPL broke out of it's $151 level and may be gravitating towards its $157 high again.
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: $331.36 Friday Close: $336.06 5-day change: 1.41%
Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $336.06 - Capital Needed: $33500.00 - Sell at the Expiration Date: 2021-11-26 - Select the Strike: $335 - Premium you'll receive: $560.00 - Cost Basis: $335.00 - $5.60 = $329.40
Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $336.06 - Capital Needed: $33606.00 - Sell at the Expiration Date: 2021-11-26 - Select the Strike: $340 - Premium you'll receive: $830.00 - Cost Basis: $336.06 - $8.30 = $327.76
AAPL Monday Open: $148.99 Friday Close: $151.28 5-day change: 1.54%
Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $151.28 - Capital Needed: $15000.00 - Sell at the Expiration Date: 2021-11-19 - Select the Strike: $150 - Premium you'll receive: $178.00 - Cost Basis: $150.00 - $1.78 = $148.22
Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $151.28 - Capital Needed: $15128.00 - Sell at the Expiration Date: 2021-11-19 - Select the Strike: $152.5 - Premium you'll receive: $177.00 - Cost Basis: $151.28 - $1.77 = $149.51
AMD Monday Open: $119.45 Friday Close: $136.34 5-day change: 14.13%
Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $136.34 - Capital Needed: $13600.00 - Sell at the Expiration Date: 2021-11-26 - Select the Strike: $136 - Premium you'll receive: $565.00 - Cost Basis: $136.00 - $5.65 = $130.35
Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $136.34 - Capital Needed: $13634.00 - Sell at the Expiration Date: 2021-11-26 - Select the Strike: $137 - Premium you'll receive: $618.00 - Cost Basis: $136.34 - $6.18 = $130.16
NKE Monday Open: $167.80 Friday Close: $177.51 5-day change: 5.78%
Starting a New Wheel: Selling a Cash-Secured Put on NKE - NKE's Current Price: $177.51 - Capital Needed: $17750.00 - Sell at the Expiration Date: 2021-11-19 - Select the Strike: $177.5 - Premium you'll receive: $333.00 - Cost Basis: $177.50 - $3.33 = $174.17
Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $177.51 - Capital Needed: $17751.00 - Sell at the Expiration Date: 2021-11-19 - Select the Strike: $180 - Premium you'll receive: $475.00 - Cost Basis: $177.51 - $4.75 = $172.76
SBUX Monday Open: $107.23 Friday Close: $116.91 5-day change: 9.03%
Starting a New Wheel: Selling a Cash-Secured Put on SBUX - SBUX's Current Price: $116.91 - Capital Needed: $11600.00 - Sell at the Expiration Date: 2021-11-19 - Select the Strike: $116 - Premium you'll receive: $170.00 - Cost Basis: $116.00 - $1.70 = $114.30
Starting a New Wheel: Selling a Covered Call on SBUX - SBUX's Current Price: $116.91 - Capital Needed: $11691.00 - Sell at the Expiration Date: 2021-11-19 - Select the Strike: $117 - Premium you'll receive: $222.00 - Cost Basis: $116.91 - $2.22 = $114.69
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Aaron
Q: Is there a plan to provide classes on how to analyze stocks? In a lot of the classes you mention “if you think the stock XYZ will hit $___ then you should do this” but is there a way to better estimate then gut feeling on a blue chip stock?
A: Though we understand that we can't 100% predict where a stock is going to go in the short-term, we know that stocks with consistent increasing revenue have a higher probability of rising in the long-term. Keep it simple, focus on the revenue growth, and we believe you'll be fine in the long-term.
Kyler
Q: Hey Guys! so when would you want to sell a covered call ITM. Why would you pick a strike price lower than the price of the underlying stock? Is it because the closer you get to expiration the buyer will most likely execute the contract because he can see that it is not going to tank? so then you can collect the premium? and capital gains if it is higher than the strike price? Also, do most people choose contracts out of the money because you have a chance of collecting much more capital gains?
A: You can sell ITM CCs, as opposed to selling OTM CSPs, to start your Wheel. In essence, you will be collecting a similar premium and be willing to sell your shares at the strike price that you choose. The only difference is if you want to enter the Wheel by first obtaining the shares or not.
Denise
Q: I sold a CC on MSFT last month that is suppose to expire November 5th at the strike price of 305. Since the stock price has risen to 328, would you suggest letting the option expire and shares being called away. Or would you suggest I buy back the option at a cost of 2300?
A: We still have some time until expiration, but you can consider letting your shares get called away. This way, you keep the premium you've made plus make capital gains. Prices always fluctuate and it is impossible to time the market. Therefore, we like to focus on making premium/capital gains every month :). Great job Denise!
Sean
Q: Thank you for your response. One more question, if I may. How many stocks do you recommend in a portfolio?
A: We recommend a 30/30/30/10 distribution. 30% in strong, dividend paying stocks/ETFs, 30% in growth stocks, 30% in the wheel strategy and 10% in LEAPs/Cash. Some members may have $1,000,000, $100,000 or $10,000. It truly depends on how much capital you have and how much you're comfortable investing with.
We typically like to stick to the 30/30/30/10 distribution. However, members may choose to change up that distribution to fit their personal risk tolerance/financial goals. At the end of the day, what you do with your portfolio is completely up to you.
Tony
Q: Hey Steve, I've been selling CSPs on MSFT, AAPL, and AMD as part of the wheel strategy about 5 weeks ago after going through the level 1 course and have made about $3,000 in premium so far without getting assigned. Lovin' the wheel strategy so far! Do you suggest I continue doing CSPs or switching to CCs?
A: Awesome job, Tony! You can consider doing a mixture of both. Since you already collected premiums to lower the cost basis of your shares, you can consider selling OTM covered calls against the shares you already own.
Earnings
SQ
Square reported top-line revenue of $3.84 billion, up from $3.03 billion a year prior. This is a 27% increase year-over-year.
Revenue from bitcoin, which accounts for the total sale amount of the cryptocurrency to customers, totaled $1.82 billion, which is up from $1.63 billion.
Transaction-based revenue was $1.3 billion, which is up from $925 million a year prior.
The company also generated $695 million in subscription revenue and $37.3 million in hardware revenue.
Lastly, Square reported payment volume of $45.43 billion, which is up from $31.73 billion a year prior.
Wall Street was disappointed because the company reported lower-than-expected revenue for the third quarter as less volatile pricing for bitcoin impacted demand.
I am still bullish on Square and a long-term investor due to their ability to grow their revenue from a year-to-year basis. I am anticipating Square to generate even more revenue in the last quarter of 2021 as holiday spending will most likely increase.
From a technical perspective, I am inclined to purchasing more shares if I can see SQ hold above its yellow upward trending support line.
PINS
Pinterest reported net income of $94 million, compared with a net loss of $94.2 million in the year-ago quarter.
Top-line revenue increased 43% to $632.9 million, which is up from $442.6 million a year prior.
Pinterest's average revenue per user (ARPU) was $1.41 while their monthly active users (MAUs) grew to 444 million.
Pinterest expects fourth-quarter revenue to grow in the “high teens percentage range” year over year.
There are talks that PINS may have declined PYPL's buyout because they have something up their sleeve. Perhaps they see much more potential growth in their company?
Though I am still bullish on PINS for the long-term, it doesn't really seem that Wall Street is favoring the stock at the moment. For me, I don't really mind holding onto some of my shares in my portfolio and selling calls against half of my positions. If you want to exit out of your trade, you can consider selling some OTM calls around $10 above the current price, which is around $55-56. I would choose to sell the calls around 3 weeks in expiration. The premiums around that strike and expiration date is around $30.
If the stock doesn't move from now until expiration, we at least get to keep the $30. We can then resell another round of $10 OTM calls. We can see the $30 as a sort of "dividend."
If the stock runs up, this means you'll get to profit from the $10 rise along with the $30 premium. Keep in mind that the probability of the stock rising 22% in three weeks is not as likely. Even if PINS slowly climbs back up and almost reaches $55-56, our sold calls may lose value since they're all far OTM options. This means that we can buy back our calls and roll them out for a further date and strike.
Remember that if you decide to sell these OTM calls, be emotionally prepared to let your shares go at the strike that you choose. If you make a realized loss since you purchased your shares higher than $55-56, remember that you can deduct up to $3,000 of losses per year. You can then recycle your capital to a stock that is in favor by Wall Street.
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.
Santa Claus Rally
It seems that we are starting our typical Santa Claus rally. Usually during the months of November and first two weeks of December, the markets will rise as a whole due to positive market sentiment. Many money managers will often times want to show their clients how well their portfolios have done. Towards the last two weeks of the year, many institutional traders may go on vacation, meaning that market volatility may slow.
With this said, it doesn't mean that we recommend dumping all of our money into the markets all at once. Please still follow discipline and the 30/30/30/10 allocation since anything can still happen in the markets, especially if the markets get spooked again by debt ceiling uncertainty in December.
Stay patient! Great things are coming! 😀
-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.
Comments