🔒Premium Membership Positions - April 9, 2023
- Call to Leap
- Apr 7, 2023
- 5 min read
Hi Wealth Builders! 👋
Hope everyone is getting a head start on their weekend today! Markets were closed today (Friday) in observance of Good Friday and ended the week with DJIA up by 0.6%, S&P 500 flat at -0.1%, and NASDAQ down by -1.1%. The hot topics markets are paying attention to this week are:
US Job market cooling: Signaled by last week's ADP payroll data, job increases in March came in at 236,000, below the expected 238,000 and well below the rolling 6 month average of 334,000. In addition, the report also indicated decelerated wage growth and a lower job openings data (JOLTS). Despite immediate reactions from the market, I think from a long-term perspective we are still at historically low rates of unemployment so there was not much room for payroll data to get significantly better. I think the markets reacted because jobs data has been one of the few points of support for our economic health over the near term. In addition, I think the Fed still has plenty of incentive to keep raising rates despite the March payroll data as inflation remains a risk. If markets are blindsided by any other news (e.g., SVB collapse, higher than expected inflation/spending, etc.,), I expect the Fed to be deliberate and wait to see how things shake out, just as they did in the recent banking turmoil.
Two cycle economy: According to some economists, we are experiencing two different but concurrent economic cycles. The first cycle is our usual macro-economic cycle where growth and spending is largely impacted by interest rates and other policy decisions. The second cycle is a COVID cycle where certain sectors (e.g., hotel, hospitality, cruises, etc.,) of the market are still recovering from a post-COVID boom despite any macro-economic pressures. It gets interesting at the intersection of these two cycles as a slowdown in one cycle would spillover to the other (e.g., fewer jobs in a sector means less vacations booked from people in that sector). This uncertainty means the Fed will continue tweaking their expectations and there may be more surprises ahead which they must navigate.
Heat Map📈
Here's this week's heat map:
What's Been Happening In The Charts?📊
SPY
The S&P500 is trading flat for the week. As I mentioned, I actually added a couple of shares to my long-term holds last week. However, if you are more conservative and would rather wait a little bit longer before buying more shares, you can see if the ETF is able to go back to the $415 level.
Steve's Trades
If you have sold CSPs and your options have significantly decayed more than 50-80%, you can consider buying your contracts back to lock in your profits and restarting a new wheel.
Also, if you have sold CCs and your shares were called away, you collected the premium, capital gains, and potential dividends from the position. You can also consider restarting a new wheel.
AAPL Bear Call Spread
Expiration Date: May 26, 2023
Step 1: Buy 1 $200 strike call option (delta 0.01) for $11
Step 2: Sell 1 $180 strike call option (delta 0.18) for $110
Step 3: Set a buy-stop order of 100 shares at $179
Credit/premium received: $110 - $11 = $99
Remember, you can always close your positions early when you have your contracts decay to around 50%+ to lock in your gains.
Ask Steve 🤔
Q1. Hi, when you seem to be bullish on microsoft by adding new shares to your portfolio, why don't you sell any CSP on them, or on Apple?
A: Great question! Whenever a company has higher highs and higher lows, we know that institutions are putting their money back into a stock, driving the price up. When this happens, we like to add more shares to our long-term holds. I bought just a few shares to add onto my long-term holds to go in slowly instead of buying 100 shares for a wheel.
Q: As I recall, if the market conditions were stable and the outlook was neutral to slightly bullish, I would sell OTM covered calls and purchase ITM LEAPS calls.
A: When the market is neutral/slightly bullish we sell OTM covered calls. We only purchase ITM LEAPS during bullish trends.
Q: I’ve been trying to wrap my head around the OTM/ITM concept ever since your course introduced me to The Wheel Strategy. I've been assuming that I would sell OTM covered calls with buying OTM LEAPS calls and vice versa. I guess it’s finally time to learn my Greeks! I just opened up an account with TDAmeritrade and might take some time to get familiar with the platform. Thanks Steve!!! SO glad I came across your platform.
A: It can definitely be a confusing concept at first! We recommend re-watching the videos and taking notes again, as repetition is key. On a high level, when selling covered calls, OTM means strikes above current stock price. When selling cash-secured puts, OTM means below current stock price. When purchasing LEAPS, ITM is below current stock price. Yes, Greeks can be confusing at first, but we believe you can do it!
Q: I know that I have to sell my shares when my OTM covered call is assigned, ITM, does that mean I have to buy shares when my long ITM LEAPS call becomes OTM?
A: If a stock's price expires at or above your covered call strike price, your shares will be called away. When purchasing a LEAPS, you are purchasing the option to, not the obligation to purchase 100 shares. If your LEAPS expires OTM, you lose your entire investment of purchasing the LEAP.
📌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. If you need help, feel free to send us a message.
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 disciplined everyone! I know that people usually get excited with these rallies, but be mindful that there is still some uncertainty with the Fed and them raising interest rates. Also be mindful that we are getting close to earnings season at the end of April, which means that there are going to be some volatile weeks.
Have a wonderful 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.
