🔒 Membership Positions - October 17, 2021

Hey Everyone!

Woohoo! Looks like the market had a strong rally for the past couple of days!

Here's SPY:

Here's QQQ:

Here's DIA:

Technical Analysis 📈📉

SPY:

Ah, we broke the downward trend and are starting to see retracement here! Remember, we still have some monetary concerns that are spooking Wall Street. If you are going to add more shares, please do so cautiously.

QQQ:

We see a similar pattern here in QQQ.

DIA:

You can also see that DIA is nearing its previous ATH.

AMD:

AMD had a strong break through its orange resistance line and is well above its mid-term yellow line.

CHWY:

I am currently keeping a close eye on CHWY as I see that it's been severely beaten down from its ATH. The downward sell-off may be stopping soon since the RSI indicates that the stock is oversold and there is a slight break in the downward trendline. Remember, this is a highly volatile stock. If I start to see retracement, I may be inclined to buy 5-10 shares to lower the average of my previous positions.

AAPL:

We also see a little break through on our orange resistance line for AAPL.

PINS:

If you are still holding onto PINS, you can keep selling your further dated calls. You may need to go out around 8-12 weeks as you wait for retracement. Looking at the charts, PINS slightly broke its resistance line, but I want to see if the price holds for the next couple of days. Remember that earnings is coming up soon, so it may serve as a catalyst for PINS to start moving again.

HD:

HD just made another ATH. I am planning to add a couple of shares of HD to my long-term holds as I see a lot of conviction in this stock.

FB:

I still wouldn't touch FB yet as it may be wise to observe the price action and if it holds above the 200 EMA line.

NKE:

There has been swift retracement from NKE. I am thinking of slowly adding a couple of shares to my long-term holds.

MSFT:

MSFT kissed its ATH again this week, which again, shows that there is a lot of conviction in this stock. I am slowly adding some more shares to my long-term holds.

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.

Upcoming Earnings: Please be mindful of company earnings coming up in the next couple of weeks. If you don't feel comfortable with the volatility, you can wait until after your favorite companies deliver their numbers to see if you want to start a new Wheel.

Here are some trade recommendations and see what fits your personal risk-tolerance:

MSFT Monday Open: $292.92 Friday Close: $304.21 5-day change: 3.85%

Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $304.21 - Capital Needed: $30000.00 - Sell at the Expiration Date: 2021-11-05 - Select the Strike: $300 - Premium you'll receive: $418.00 - Cost Basis: $300.00 - $4.18 = $295.82

Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $304.21 - Capital Needed: $30421.00 - Sell at the Expiration Date: 2021-11-05 - Select the Strike: $305 - Premium you'll receive: $625.00 - Cost Basis: $304.21 - $6.25 = $297.96

AAPL Monday Open: $142.27 Friday Close: $144.84 5-day change: 1.8%

Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $144.84 - Capital Needed: $14400.00 - Sell at the Expiration Date: 2021-11-05 - Select the Strike: $144 - Premium you'll receive: $299.00 - Cost Basis: $144.00 - $2.99 = $141.01

Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $144.84 - Capital Needed: $14484.00 - Sell at the Expiration Date: 2021-11-05 - Select the Strike: $145 - Premium you'll receive: $345.00 - Cost Basis: $144.84 - $3.45 = $141.39

AMD Monday Open: $104.62 Friday Close: $112.12 5-day change: 7.16%

Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $112.12 - Capital Needed: $11200.00 - Sell at the Expiration Date: 2021-11-05 - Select the Strike: $112 - Premium you'll receive: $440.00 - Cost Basis: $112.00 - $4.40 = $107.60

Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $112.12 - Capital Needed: $11212.00 - Sell at the Expiration Date: 2021-11-05 - Select the Strike: $113 - Premium you'll receive: $490.00 - Cost Basis: $112.12 - $4.90 = $107.22

NKE Monday Open: $151.99 Friday Close: $158.01 5-day change: 3.96%

Starting a New Wheel: Selling a Cash-Secured Put on NKE - NKE's Current Price: $158.01 - Capital Needed: $15500.00 - Sell at the Expiration Date: 2021-11-05 - Select the Strike: $155 - Premium you'll receive: $164.00 - Cost Basis: $155.00 - $1.64 = $153.36

Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $158.01 - Capital Needed: $15801.00 - Sell at the Expiration Date: 2021-11-05 - Select the Strike: $160 - Premium you'll receive: $388.00 - Cost Basis: $158.01 - $3.88 = $154.13

SBUX Monday Open: $112.89 Friday Close: $111.45 5-day change: -1.27%

Starting a New Wheel: Selling a Cash-Secured Put on SBUX - SBUX's Current Price: $111.45 - Capital Needed: $11100.00 - Sell at the Expiration Date: 2021-11-05 - Select the Strike: $111 - Premium you'll receive: $233.00 - Cost Basis: $111.00 - $2.33 = $108.67

Starting a New Wheel: Selling a Covered Call on SBUX - SBUX's Current Price: $111.45 - Capital Needed: $11145.00 - Sell at the Expiration Date: 2021-11-05 - Select the Strike: $112 - Premium you'll receive: $274.00 - Cost Basis: $111.45 - $2.74 = $108.71

Ask Steve 💭

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

Arinda

Q1: Hi, if the market is going through a pullback, and stock prices are dropping and are cheaper than when the market is bullish, why are you recommending to hold off on purchasing stocks until the market retraces? It makes more sense to me to buy stocks when they are cheap, but maybe I'm missing something about the implications of buying stocks during a pullback? Please advise, thank you!

A1: The reason we don't immediately purchase stocks during a pullback is because we don't know how far the stocks are going to drop. We don't want to catch a falling knife and buy a stock at $100, just for it to continue falling to $50. Does this make sense? Instead, we like to wait until the stock rises around 5% from its lowest price to consider buying more shares. This typically means that institutions are putting money back in again, but not always. The goal is to ride the wave up.

Q2: Hi, some months ago I sold a CSP for PINS & purchased the stocks at $74. Since then, PINS has been trending downwards & stock price has been ranging in the $50s. I'm hesitant to continue the Wheel & sell a CC because if they end up being called away, I technically lose about $1500 considering the stock devaluation. I have been waiting for PINSs to retrace b4 selling a CC, but would like to ask if there's a strategy to sell a CC with low risk of them being called away ? Please advise.

A2: You can consider selling covered calls at your cost-basis price. For example, if you got $400 in premium and you were assigned at $74, you can consider a $70 strike for a covered call. Since the strike is far OTM, the premiums will be very small. In this situation we just have to be patient until the stock retraces again. Consider looking at the delta to see what is the "percentage chance" of the stock reaching that price by expiration. For example, a delta 0.10 has a 10% chance of reaching that strike by expiration.

Anthony

Q: Hello,

I was assigned a put option I sold on PINS for $54 that expired last Friday 10/8. I collected premium of $255. My breakeven price of $51.45. Looking at the call options, I can sell it for $54 with a $228 premium, or $52 for a $312 premium.

Would you recommend selling the call at my break even cost ($52) or the actual cost($54)?

A: It is completely up to you. You can consider selling a covered call at the $54 or $55 strike. It depends if you want more upfront premium or if you want to capture the potential capital gains of the upwards movement if the stock retraces during your contract.

If you want more upfront premium, consider the $52 strike. If you want to capture capital gains and you think the stock is going to retrace within the next month, consider a $55 strike or higher. A further OTM strike would give less upfront premium, but can capture capital gains of an upwards stock price movement. At the end of the day it is up to you to do whatever you would like to do.

Adam

Q: Hi Steeve! love the course so far I just completed level one. My question is because im starting with only 5-6 grand and you don't recommend putting all your money into a signal stock even if it means getting 100 shares for example like buying 100 shares of Pinterest at 5,141$ taking up my entire portfolio. What would you recommend I do if I want to start selling covered calls asap. I know you recommend to buy individual shares of multiple stocks but how can that help me sell calls later?

A: We're glad you're enjoying the course! Because we like high quality stocks, we recommend having at least $10-15k to start the wheel. You could technically do it on PINS, but we do not recommend this as your first wheel because this is a very volatile stock. Especially because you would be using most, if not all of your capital on this PINS wheel. Instead, we recommend that you continue to slowly invest until you have enough to start an AAPL or SBUX wheel. An AAPL/SBUX wheel is more "stable" and therefore we recommend that our members start with these ones. As you gain more capital you can then consider adding more volatile stocks like AMD or PINS. We are cautious with these because during pullbacks and corrections, stocks like these get sold the fastest which cause them to have significant price drops as opposed to more stable stocks like AAPL, SBUX, NKE or MSFT. You can consider slowly investing your $5-6k into fundamentally strong, dividend paying stocks that are part of the DOW 30/S&P500 and ETFs that track the S&P500 like SPY or VOO to grow your portfolio enough to start a wheel.

Jordon

Q: What are your thoughts about holding a long-term stock like HD as opposed to V or MA? HD also has a strong history of paying dividends that have been increasing, a low P/E, and a relatively high yield. Thanks!

A: We like HD! You can consider diversifying and picking up shares of all three companies if you would like to. At the end of the day it is up to you in regards to which companies you would like to invest in.

Ali

Q: Hi, last month I sold a cash-secured put on SBUX when it was trading for $119. Now it's down to $111-112. I've lost about $600 on the play. I'm staying patient. This week, the article said to not start a wheel, but also to sell covered calls. So, should I sell a covered call on my SBUX stocks? If so, what strike price and expiry date should I choose? If I'm understanding the article correctly, I should choose one month out and a strike of $119? That'd net me ~$47 premium. Is that the way to go?

A: Correct. You can consider selling a covered call on SBUX, one month out at the $119 strike price. Because the stock dropped, the $119 strike price is now further OTM, which means we will collect less premium. In this situation we just collect less premium as we wait for the stock to retrace back up again.

Tony

Q1: Hey Steve, I had sold a CSP on MSFT on 10/5 for $690 ($285 strike, 10/29 expiration) making approximately a 2.4% return. Currently MSFT is trading at around $301 and the put is worth $132 with about 2 weeks left until expiration. In your BBRO videos, you mentioned buying back the put for a higher price, but in this case, would it make sense for me to buy it back at a lower price of $132 so I can release the collateral to sell another CSP?

A1: In this case, you can consider locking in your profits by buying to close your CSP. We typically recommend doing this when your contract has gained 90% of its value and you still have a few weeks left. It looks like your contract has gained around 80.9%. It is up to you if you would like to wait or lock in your profits. If you decide to lock in your profits you can then consider either starting the wheel again with another CSP or buying 100 shares and then selling a covered call.

Q2: This is a follow up to my previous question. Let's say I had exactly $28,500 to sell that MSFT CSP at $285 strike. I wait until 10/29 for the option to expire worthless and MSFT is $300 and I want to sell another CSP on MSFT at $300 strike. Now, I need $30,000. The initial $28,500 in my account + $690 premium only totals to $29,190. In general, as a stock rises, the collateral we need increases. What's your recommendation to continue the Wheel without having to add more of our own capital?

A2: Correct. Overtime as the stock rises, it will cost more to start wheels. You can consider selling delta 0.30 covered calls. "Delta" is the percent chance of the underlying stock price hitting your strike price by expiration. For example a delta 0.30 has a 30% chance, a delta 0.15 has a 15% chance, etc. However, the further OTM your strike price is, the less premium you'll get up front. The pro to selling further OTM is that you'll capture capital gains if the stock rises and hits your strike price at the end of expiration. For example if stock XYZ is at $100, you'd get more premium selling a covered call at $101 than you would selling at $110. The $101 strike would give lets say $250 premium, but at the end of your contract if XYZ is at $110, you would not benefit from the movement because you would have to sell at $101. Now, if you sold at the $110 strike, you probably would get like $50 premium, but if at the end of your contract XYZ is at $110, you'll make $1,000 capital gain plus the $50 from premium. This method will increase your chances of holding on to the shares, but you will get less premium upfront as you're selling covered calls further OTM.

The pro to selling NTM covered calls is that you get more guaranteed premium upfront. It is impossible to predict the stock market. Your stock could drop $20 during your contract. However, if you sold a NTM CC, you got a large upfront premium and your contract will now most likely expire worthless.

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.

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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.

Market Motives:

If you notice the charts of the S&P500, for every pullback or correction that happens, there is retracement 100% of the time. In the long-term, markets will continue to rise. Why? Here are some reasons:

Retirement accounts: If you take a look at your paycheck, you most likely see that a small portion of your money went into your retirement account, like a 401K or 403B. When this money moves out of your paycheck, it typically will end up with a money manager who will have the intention of investing for you, making a profit, and taking a small percent of that profit. Where do money managers like to put their money? You guessed it; The stock market. Money managers have a huge incentive of wanting to make money for you, so they can ultimately make money for themselves.
CEOs and companies: CEOs and companies also have an incentive to do well for their business. If they show money managers and other large institutions with billions of dollars that they can increase their revenue time after time, institutional money will want to be put into these companies' stocks, which ultimately increases the price of the stock. CEOs are typically wealthy because they hold a large portion of their own company stocks, meaning that if their company does well and they persuade institutions to invest in their company, CEO pockets grow larger!
Inflation: Let's face it. There is always going to be money put into circulation as time progresses and all that money has to go somewhere. And truth be told, a lot of that money will get added onto the fortune of wealthy people. All wealthy people know that it's a silly idea to keep all their money in a bank since it can be eroded away from inflation. Instead, they want to invest it somewhere, which, you guess it, is going to be in the stock market.

Hopefully with this, it will put your mind at ease whenever we have a pullback or correction. Make sure to always stay patient as this is the key factor of being successful in your journey to financial freedom.

-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.