Hey Investors and Traders!
Whew! What a week! We are still in our pullback, but there is nothing to worry about! Just light a candle and turn on some nice meditation music.
Here are some notable price movements in the stocks we're trading:
Microsoft MSFT
Monday Open: $206.50
Friday Close: $204.03
Apple AAPL
Monday Open: $113.95
Friday Close: $112.00
Advanced Micro Devices AMD
Monday Open: $78.05
Friday Close: $76.34
Trade of the Week:
Converting your Cash-Secured Puts into Covered Calls and Reselling Covered Calls
Because of the pullback, there is a high chance that you were assigned shares from your cash-secured put. If that's so, convert your trade into a covered call and resell at the same strike price on the October 9, 2020 expiration. You will be able to collect more premium and reduce your cost basis even more.
If you were in a covered call trade and you were not called away, sell another call against your shares at the same strike price you chose last month. You can also choose the October 9, 2020 expiration date.
Converting your AMD Cash-Secured Put to a Covered Call
If you followed our trade back in August 16, 2020, we recommended selling a cash-secured put on AMD at the $81 strike with the September 11, 2020 expiration date. Because you were assigned the 100 shares, you can now convert your trade to a covered call.
AMD - 100 shares assigned at $81
Sell at the Expiration Date: October 9, 2020
Select the Strike: $81 (Willing to sell the 100 shares at this price)
Premium you'll receive: $282
Cost Basis: You can subtract $2.82 from your previous cost basis
Reselling your MSFT Covered Call
If you followed our trade back in August 16, 2020, we recommended selling a covered call on MSFT at the $210 strike with the September 11, 2020 expiration date. Because your shares were not called away, you can now resell a covered call on your shares.
MSFT- 100 shares from previous covered call trade
Sell at the Expiration Date: October 9, 2020
Select the Strike: $210 (Willing to sell the 100 shares at this price)
Premium you'll receive: $560
Cost Basis: You can subtract $5.60 from your previous cost basis
Starting a New Wheel: Selling a Cash-Secured Put on AMD
AMD- $76.34
Capital needed: $7,600
Sell at the Expiration Date: October 9, 2020
Select the Strike: $76 (Willing to buy the 100 shares at this price)
Premium you'll receive: $480
Cost Basis: $76.00 - $4.80 = $71.20
Note: If you want to be more conservative, you can select a strike lower than the current price. You can consider choosing the $75 or $74 strike. You won't receive as much premium the further OTM you go. However, if you are assigned the 100 shares, you will be able to purchase the shares at a cheaper price.
Starting a New Wheel: Selling a Cash-Secured Put on MSFT
MSFT - $204.03
Capital needed: $20,250
Sell at the Expiration Date: October 9, 2020
Select the Strike: $202.50 (Willing to buy the 100 shares at this price)
Premium you'll receive: $700
Cost Basis: $202.50 - $7.00 = $195.50
Note: If you want to be more conservative, you can select a strike lower than the current price. You can consider choosing the $200 or $197.50 strike. You won't receive as much premium the further OTM you go. However, if you are assigned the 100 shares, you will be able to purchase the shares at a cheaper price.
Starting a New Wheel: Selling a Cash-Secured Put on AAPL
AAPL- $112.00
Capital needed: $11,200
Expiration Date: October 9, 2020
Strike: $111.25 (Willing to buy the 100 shares at this price)
Premium: $540
Cost Basis: $111.25 - $5.40 = $105.85
Note: If you want to be more conservative, you can select a strike lower than the current price. You can consider choosing the $110.00 or $108.75 strike. You won't receive as much premium the further OTM you go. However, if you are assigned the 100 shares, you will be able to purchase the shares at a cheaper price.
Extra Shares On The Side
Like what we said last week because our minor pullback could be a clearance sale, you can consider picking up some AAPL and MSFT shares on the side at a discount in case the stock rockets up the next couple of weeks. This doesn't mean to go all in, though. This is a great strategy if you are afraid that your shares might be called away from your covered calls.
Rechecking your Portfolio
First, make sure your Wheels are staggered on different strikes and different expiration dates. Second, check to see that you have Wheels on different stocks. And third, make sure the stocks you are trading most likely pay a dividend as they won't sell off as quickly compared to stocks that do. These strategies will help spread your risk and keep your portfolio safe.
Final Thoughts:
We know that your portfolio amount is "lower" this week. However, don't let that number fool you! Remember, you don't lose anything until you actually sell the stocks at a lower price. If you are still selling covered calls on your shares, you are still collecting premium and doing much better than the average person!
Yeah, yeah, yeah. We say it every week, but always keep the majority of your portfolio in fundamentally strong, technically strong, dividend-paying stocks. This is not the time to speculate on cheap stocks or even BUY cheap calls. The "Craigs" who bought cheap call options these past two weeks most likely lost a good portion of their money! Bleh.
Oh and did you know? In the long-term, the stock market always rises more than it falls. Heh. Just dropping some facts.
Stay optimistic and disciplined! 😎
- 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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