🔒 Membership Positions - September 12, 2021

Hey Everyone!

We had a bit of a selloff this week in the major indices as Wall Street sentiment isn't usually upbeat during Labor Day and 9/11. No fear! We know to be patient and to keep our eyes on the long-term.

Here's SPY:

Here's QQQ:

Here's DIA:

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: I know we are in a bullish market, but I still want to give you a friendly reminder 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.

NKE: Nike's next earnings date is expected to report on September 23. Keep that in mind as you spin your Wheel on this stock.

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

MSFT Monday Open: $301.01 Friday Close: $295.71 5-day change: -1.75%

Starting a New Wheel: Selling a Cash-Secured Put on MSFT - MSFT's Current Price: $295.71 - Capital Needed: $29500.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $295 - Premium you'll receive: $625.00 - Cost Basis: $295.00 - $6.25 = $288.75

Starting a New Wheel: Selling a Covered Call on MSFT - MSFT's Current Price: $295.71 - Capital Needed: $29571.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $300 - Premium you'll receive: $870.00 - Cost Basis: $295.71 - $8.70 = $287.01

AAPL Monday Open: $154.97 Friday Close: $148.97 5-day change: -3.87%

Starting a New Wheel: Selling a Cash-Secured Put on AAPL - AAPL's Current Price: $148.97 - Capital Needed: $14800.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $148 - Premium you'll receive: $388.00 - Cost Basis: $148.00 - $3.88 = $144.12

Starting a New Wheel: Selling a Covered Call on AAPL - AAPL's Current Price: $148.97 - Capital Needed: $14897.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $149 - Premium you'll receive: $435.00 - Cost Basis: $148.97 - $4.35 = $144.62

AMD Monday Open: $109.96 Friday Close: $105.20 5-day change: -4.32%

Starting a New Wheel: Selling a Cash-Secured Put on AMD - AMD's Current Price: $105.20 - Capital Needed: $10500.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $105 - Premium you'll receive: $413.00 - Cost Basis: $105.00 - $4.13 = $100.87

Starting a New Wheel: Selling a Covered Call on AMD - AMD's Current Price: $105.20 - Capital Needed: $10520.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $106 - Premium you'll receive: $465.00 - Cost Basis: $105.20 - $4.65 = $100.55

NKE Monday Open: $163.70 Friday Close: $163.59 5-day change: -0.06%

Starting a New Wheel: Selling a Cash-Secured Put on NKE - NKE's Current Price: $163.59 - Capital Needed: $16000.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $160 - Premium you'll receive: $440.00 - Cost Basis: $160.00 - $4.40 = $155.60

Starting a New Wheel: Selling a Covered Call on NKE - NKE's Current Price: $163.59 - Capital Needed: $16359.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $165 - Premium you'll receive: $680.00 - Cost Basis: $163.59 - $6.80 = $156.79

PINS Monday Open: $56.70 Friday Close: $54.24 5-day change: -4.33%

Starting a New Wheel: Selling a Cash-Secured Put on PINS - PINS's Current Price: $54.24 - Capital Needed: $5400.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $54 - Premium you'll receive: $234.00 - Cost Basis: $54.00 - $2.34 = $51.66

Starting a New Wheel: Selling a Covered Call on PINS - PINS's Current Price: $54.24 - Capital Needed: $5424.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $55 - Premium you'll receive: $276.00 - Cost Basis: $54.24 - $2.76 = $51.48

SBUX Monday Open: $117.09 Friday Close: $119.34 5-day change: 1.92%

Starting a New Wheel: Selling a Cash-Secured Put on SBUX - SBUX's Current Price: $119.34 - Capital Needed: $11900.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $119 - Premium you'll receive: $240.00 - Cost Basis: $119.00 - $2.40 = $116.60

Starting a New Wheel: Selling a Covered Call on SBUX - SBUX's Current Price: $119.34 - Capital Needed: $11934.00 - Sell at the Expiration Date: 2021-10-08 - Select the Strike: $120 - Premium you'll receive: $288.00 - Cost Basis: $119.34 - $2.88 = $116.46

Ask Steve 💭

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

John

Q1: Why not do the wheel with higher implied volatility stocks like NIO and PLTR?

A1: When corrections happen, large institutions sell off more volatile stocks faster than they do stable stocks that pay dividends. When this happens, the volatile stocks typically tank and drop much further. If you're selling covered calls on these volatile stocks, your strike would be far OTM which would give next to nothing on your premiums for the next month. You would then have to wait for the stock to retrace which can take a long time. As opposed to doing the wheel on more stable stocks, they are a little more "resistant" because of their stability and we believe they'll ultimately retrace back up given enough time. When we do the wheel, we do them on stocks we wouldn't mind holding for the long-term anyways. We personally would not invest in NIO or PLTR for the long-term. We would much rather have 100 stocks of AAPL/MSFT and therefore this is why we do the wheel on these stocks :).

Q2: Isn't the wheel bad with growing stocks because you can miss out on growth or you might need more capital to sell puts?

A2: Nobody can predict the stock market. Therefore the goal of the wheel is to make premium every month. If the stock goes down, you can sell covered calls for premium. If the stock goes up you can still sell covered calls for premium and even make capital gains. If you sell a CSP and the stock rises, you make premium. If you get assigned from a CSP, you can then sell a covered call to make premium. Nobody can know if a growth stock will shoot up $20 or drop $20, but we can utilize the wheel every month to make income. The alternative would be to hold on to the growth stock for the long-term and watch it go up and down without making any premium on it. Yes, in bull markets we may "miss" the gains, but we still make money trading the wheel and it could've easily gone the other way too.

Q4: For the wheel, why choose strike prices that are likely to get assigned?

A4: We often like selling NTM options because the premiums are higher and guaranteed upon selling the contracts.

Jordon

Q: I just finished watching all the videos in Level 1, opened up a brokerage account with TDAmeritrade, and have about $25,000 to start investing. From the allocation video in Level 1, you mentioned portfolios between 10K-50K should divide their portfolio with 2/3's used for CC/CSP. Given my portfolio size, how can I have multiple contracts open for CC? If all my contracts get called away, wouldn't I need the capital to pay for as many contracts as I have open?

A: Awesome job! In order to enter a wheel, one either needs to have 100 shares (CC) or have the money to purchase 100 shares (CSP). $25k allows you to trade the wheel on some of our recommended stocks in our membership positions. What you do with your portfolio is completely up to you. You can consider starting one wheel on AAPL and slowly investing the rest into long-term holds. You can only sell to open a covered call when you've purchased 100 shares of a company. If you sell a covered call and your shares get called away at expiration, the money goes back into your brokerage account and you can consider selling another covered call if you have the funds for it.

To have multiple CCs, you just need more shares. 100 shares = 1 contract. For example, if you want to sell 10 covered calls, you'd need 1,000 shares. If a stock is $100, it would cost you $10k per contract. If you want to sell 10 covered calls on this stock, it would cost you $100,000.

David

Q: Hello, i'm a beginner to all of the stock market. I just finished Level 1 and i understand the concept but i will continue to re-watch the videos. Do you recommend I start investing now or should I go through level 2-3 beforehand. Thank you!

A: Welcome to our wealth building community! Great job on completing level 1! Yes, re-watching our videos will allow you to solidify the concepts. They may be confusing at first, but this is why we are here. To answer any questions you may have! What you do with your portfolio is completely up to you and you can invest whenever you'd like. If you're brand new to the stock market, you can consider purchasing a few fundamentally strong, dividend paying stocks like MSFT, AAPL and V. You can also consider purchasing ETFs that track the S&P500 like SPY and VOO. Once you build your portfolio and you're comfortable starting the wheel, you can consider starting the wheel on a "more stable" stock like MSFT, AAPL, NKE or SBUX. Level 2 and 3 are more advanced trades and we typically recommend starting off slow to understand all concepts before proceeding. However, you can definitely watch level 2 and 3 if you'd like. Our program is self-paced :).

Iris

Q1: I’m a beginner investor and recently joined the level 1 program. I have 60k to invest and would like some guidance on how to diversify. I saw the video were Steve recommends to invest 1/3 in fundamentally strong stocks and use the rest to sell covered calls.

A1: We typically recommend a 30/30/30/10 portfolio allocation. You can consider having 30% of your portfolio in the wheel, 30% in fundamentally strong stocks/ETFs that track the S&P500, 30% in growth stocks and 10% in cash.

Q2: Is there a best day and time of the week to buy stocks?

A2: You can buy stocks whenever the market is open and whenever you’d like to. However, when we trade the wheel we typically like selling covered calls/cash-secured puts 1 hour after the market opens on Mondays.

Q3: If investing 20k in stocks, what do you recommend I buy?

A3: What you buy is completely up to you. You can consider SLOWLY buying stocks that fit our investing criteria (Part of the DOW30/S&P500, fundamentally and technically strong and pays a dividend). Check out our intro course for a refresher. Some stocks you can consider are MSFT, AAPL, V and MA. Consider buying just a few shares of each. As the shares increase in price, you can consider slowly adding more shares to your portfolio over time.

Q4: Lastly, Steve go live with the subscribers to showcase how to use the application to in real time?

A4: If by application you mean trading platforms, we have videos/tutorials you can watch that show you how to trade the wheel on different platforms. Check them out in our level 1 videos.

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 Level 1 page. 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.

Technical Analysis 📈📉

SBUX:

SBUX is still trending up and between its support and resistance lines.

NKE:

NKE is still having it's temporary pullback. I'm guessing that it ran up too high, too fast for the past several weeks. Please be mindful that earnings are coming up in the next couple of days. If you're new, we wouldn't recommend trading this stock until they deliver their reports. If they amaze Wall Street with their numbers, you can get the green light to start trading it again. If you've been trading this stock for a while and don't mind the volatility, go ahead and continue to spin your wheels. The higher IV will also cause the premiums to be higher for this stock too.

PINS:

I still have shares of PINS where I purchased them between $70-80 and have been slowly selling further dated calls to lower my cost basis. It looks like PINS has been quiet over the past several days and has been hovering around the $55 level. If I start to see a new trend forming, I will let you know.

MSFT:

As usual, MSFT is a boring stock, but gets the job done. It's still holding strong with the stock price hovering near its ATH.

AAPL:

APPL is set to announce their new product line next week. This might be a catalyst for some movement for the next couple of days. Keep your eyes out.

AMD:

Ever since AMD rocketed up to $120, it pulled back and has been hovering between $105 and $112. If you're a premium member, you know that this is a great candidate for setting up bear call spreads.

Quick Review: Why Are Your Options Shrinking in Value? 📚

As you are utilizing the Wheel Strategy, I just wanted to take a moment to refresh some basic options concepts and explore why your sold covered calls and cash-secured puts lose value. There are three reasons:

Time decay: Each day Craig holds onto the contract you sold him, it actually loses a little value due to time decay, which happens the fastest when contracts have less than 30 days until expiration.
Underlying Stock Price: If you sold a covered call against your AMD shares, and the underlying stock of AMD drops in price, your call option will most likely also shrink in value. On the other hand, if AMD increases in price, your put option will most likely lose value. All in all, the further OTM your option goes, the faster the option will shrink.
Implied Volatility: If traders are not actively trading as much, the implied volatility will most likely shrink. This decrease in IV will lead to option prices to also lose value.

Do you see why it is not as favorable being a short-term options buyer? You have three enemies attacking the options you buy, with time decay being the worst one. Stick to selling short-term options as the mathematics stack in your favor. 👌

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's take some time to honor those people who passed and risked their lives on September 11. After this period of time passes, we're expecting the markets to move again.

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.