Hey Wealth Builders!
As expected, we saw the S&P500 continue to sell off this week. Let's see what strategies we can implement.
What 's Steve Investing? 📈
SPY
SPY bounced off of the $390 level as we anticipated. As more data is coming in, I readjusted some lines and added a new possible support line in magenta. As of now, we still have short-term higher highs and higher lows.
If I see a bounce off of this potential support line on Tuesday, I may be inclined to slowly add 1-5 more shares to my portfolio.
If you want to be more cautious, you can even patiently wait until SPY breaks and stays above the yellow resistance line before adding more shares.
If SPY breaks below the support, I am going to pause on adding more shares until I can see evidence of a potential bottom.
AAPL
If the sell-off persists, we may see AAPL drift down to the $151 level, as this served as a past support and resistance line.
MSFT
Similar to SPY, MSFT may also be coming towards a new potential support line denoted in magenta. Again, if there is a bounce off of this line on Tuesday, I will be inclined to buying a couple more shares.
AMZN
We also see the same thing with AMZN.
AMD
NVDA and AMD said Wednesday that they had been told by the US government to halt exports of certain high-performance chips to China, which led to a sell-off. Stay patient with this one since we all know that semi-conductor stocks are extremely volatile and are sensitive to news.
WM
Lastly, WM is still in an upward trend and I will be looking out for that bounce to add more shares. Again, if the stock breaks below the support line, I will pause on adding anymore shares.
Trade Of The Week:
Like last week, I'm not starting any new wheel trades for now and observing where the markets go.
However, I may be planning on setting up new bear call spreads. More on this in the Premium Membership Post.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Q1. I was wondering if I could possibly get your opinion on the following question as I am wanting to balance my current investment mix a bit more evenly by buying 100 shares of VTI. Would you recommend buying them all at once in order to get some premium or would you say it is better to stagger the purchases (25 shares) every week or two due to the current or volatile market fluctuations? I guess I am wondering if the premium vs cost averaging is better?
A1. What you do with your portfolio is completely up to you. If your goal is to wheel VTI and make passive income every month and you don't mind owning these shares for the long-term, you can consider entering a wheel with a CSP. We would recommend a further OTM strike. If you don't want to wheel VTI and just want to hold it for the long-term you can consider SLOWLY investing into it every month. Perhaps a few shares a month etc.
Q2. I still don't understand the difference between covered calls and cash secured puts? They seem very similar. When is it best to use which?
A2. Wonderful question! When you sell a covered call, you are first purchasing 100 shares and then agreeing to sell your 100 shares at a certain price for a premium. When you sell a cash-secured put, you don't own 100 shares, but are willing to purchase 100 shares at a selected strike price and are given premium for willing to do so.
What happens at expiration?
For a covered call at expiration, 2 things can happen.
1. The underlying stock price is at or above our strike price. This will result in us letting our shares go at our strike price.
2. The underlying stock price is under our strike price. This will result in us keeping our shares.
In both scenarios we still keep our premium.
For a cash secured put, 2 things can happen.
1. The underlying stock price is at or below our strike price. This will result in us purchasing 100 shares at our strike price.
2. The underlying stock price is above our strike price. This will result in us not purchasing the 100 shares.
In both scenarios we still keep our premium.
They are both great! We typically start our wheels with a CSP and when it is assigned, we then sell a CC at or above our cost basis until our shares are called away and then we repeat this process. The advantage of covered calls is that in bull markets you are able to make capital gains.
Q3. I’m trying to decide which company to invest in strictly for selling covered calls. Right now I have the funds available to invest in CSCO to purchase 100 shares. Strategically, wouldn’t it be wise for me to go forward with this or should I keep saving to invest in a company like AAPL which I do like but just don’t have the funds now to sell covered calls on it? If I continue saving, it would take another 6 - 8 months to get the money required for 100 AAPL shares.
A3. What you do with your portfolio is completely up to you. We don't recommend wheeling CSCO as we don't believe it is as strong of a company as AAPL is. Yes, it may be cheaper to start, but it is more riskier in our opinion. As mentioned previously, you are free to do whatever you would like to do with your portfolio. With that being said, if you like CSCO and wouldn't mind owning their shares for the long-term and you want to start a wheel, you can consider doing so. However, we personally don't wheel CSCO.
Q4. I'm wondering what your thoughts are on renewable energy stocks? I understand that we are interested in safe stocks, those on the Dow30 and S&P500, but it also looks like the future is trending into treating climate change, and stocks relating to those seem to be doing pretty well despite political shakeups. Is it possible to set up a zoom meeting to discuss more? I have more questions.
A4. Great question. At Call to Leap, we try to avoid speculating investing. Instead, we look to see if a company is in the DOW30/S&P 500, pays a dividend and has strong fundamentals and technicals. We like investing in strong companies that have proven themselves and continue to make more money every year and tend to stay away from the ideas of how a company might prove themselves in the future without actual current data to go off of. A perfect example can be seen with Rivian. It shot up to $130 because many thought it was going to do well even without having actual data. It is now trading at $30.
With that being said, what you do with your portfolio is completely up to you. Unfortunately, we are unable to set up a zoom meeting at this time. However, feel free to continue sending in your questions! We are happy to answer them!
Q5. Whats the good play guys?.... So I followed Steve's suggestion, on 8/23: I Sold a covered call for AMD @ strike price $95, expire date: 9/23. I got a premium of $470 at the time. I can close it now for -$46? Do I bounce and start it up again? (WWSD) What would Steve do?
A5. Great question! I would buy back the option for $46 and roll out to a further expiration date (6-8 weeks) with a strike between $90-95.
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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.
Stay patient, everyone! Be disciplined with paying yourself first by adding more capital into your investing accounts.
Have a wonderful Labor Day 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.
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