Hi Wealth Builders! 👋
Despite the Fed reiterating their commitment last week to continue rate adjustments as needed to combat inflation, investors were still hopeful that the Fed will change course. However, this hope has been dampened in recent days with hotter than expected inflation readings and experts have started entertaining a third scenario of "no landing" when talking about whether we will have a soft landing in inflation versus a recession.
Personally, I feel investors are hungry for growth and are extra sensitive to any potential of good news. That's why I'd like to see stocks rise a bit more before I start accelerating any buying. As you all know, I take a long term view on investing and there is no substitution for good investing habits which prepares me for any market.
Heat Map📈
Here's this week's heat map:
How's the S&P500 doing?📊
SPY
The major markets closed mixed for the week as investors continued the guessing game on rate activity. SPY slightly dipped for a second consecutive week in the longer trend of our January S&P500 rally. Note that we're testing our resistance line from May, so I'm still waiting to see if we break above this line. If it does, I will add another 5-10 shares to my long-term holds.
Diving a layer deeper, we can see interesting activity at the sector level as investors begin favoring growth sector (information technology, communication services, etc.,) over value sector. This means that some investors are starting to lean toward growth as they believe growth sector stocks entering reasonable valuations. Personally, I always open positions in stocks I don't mind owning for the long term and strong company fundamentals give me greater comfort no matter the sector sway.
Steve's Trades
SBUX Cash-Secured Puts:
If you had cash-secured puts from a couple of weeks ago and see that your option contracts have decayed around 50% or more, feel free to close your positions.
This week I am still selling Cash Secured Puts against SBUX.
Expiration Date: March 24, 2023
Step 1: Have $10,200 of cash as collateral
Step 2: Sell 1 $102 strike put option (delta -0.25) for $121.
Credit/premium received: $121
Again, make sure you are bullish on SBUX in the long run and are willing to buy 100 shares for $102. As always, please tweak the numbers around based on your risk tolerance.
AMZN Bear Call Spread:
If you had prior AMZN Bear Call Spreads, feel free to close your positions and lock in your profits.
Expiration Date: March 24, 2023
Step 1: Buy 1 $130 strike call option (delta 0.03) for $14
Step 2: Sell 1 $111 strike call option (delta 0.16) for $91.
Step 3: Set a buy-stop order of 100 shares at $110
Credit/premium received: $91 - $14 = $77
Again, make sure you are willing to buy 100 shares of AMZN to cover your exposure in case of a rally. As always, please tweak the numbers around based on your risk tolerance.
Ask Steve 🤔
Q. Once we sell a covered call or a put, and we get paid the premium, we can't lose that premium? Or will we get less premium once the contract closes? I guess I was confused because you mentioned closing your put positions early to buy them back? If we let them just go to the expiration date, we won't lose our initial premium, correct?
A: Correct! Once we sell a covered call or a cash-secured put, the premium we receive is ours to keep so long as we let the option go to the expiration date. The value of our contract fluctuates during that time. If the value of our contract goes down during the duration of the option, we can consider buying back the contract at a cheaper price, resulting in us making the difference in premium.
Q. I didn't see these videos in the training sections about these buyback scenarios/examples?
A: To find the "Buying Back and Rolling Out" videos, go to our dashboard, scroll to our level 1, click "see past videos" under tutorials, scroll down past the Ask Steve section and it should be under the "Tutorials" section labeled, "Buying Back and Rolling Out".
Q. Would I be able to buy back my covered call for the above scenario I mentioned?
A: You can buy your contract back at any time during the duration of your option and it is completely up to you when you would like to do this. Sometimes, you may consider buying it back once you've gained the majority of your premium . Other times you may consider buying it back if you are trying to roll it out. We believe the "Buying Back and Rolling Out" gives important context on actionable steps and entailing nuances. Please reach out if you have any additional questions!
Q. In a bullish market, can I sell a CSP at a strike price that is higher than the current market price? Premiums seem to be higher.
A: You can consider doing that if you are bullish on the stock and don't mind getting assigned at your selected CSP strike price if the underlying stock expires below your strike price. Typically, we recommend selling CSPs a few strikes below the underlying stock price to give us more "protection" just in case the stock drops. Yes, selling a CSP at a higher strike will give you more premium, but also exposure to purchasing shares at the higher price.
Q. Can you explain the difference between cash and margin account and what you would recommend and why? Is a margin account so much riskier?
A: You can have margin enabled in a cash account or have your cash account without margin enabled. The risk in margin accounts is mainly from you purchasing shares with money that is not yours. It is essentially credit. If you buy stocks on margin and the stocks drop, you will get a margin call from your broker, to which you are required to deposit additional funds to cover your margin. If you do not deposit money, your brokerage goes into your account and sells your shares to recuperate what you've borrowed on margin. It is important to remember that you must always do your due diligence before making any trade regardless of margin and always trade within your comfort risk tolerance!
📌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. 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.
Have a wonderful weekend! It looks like we are slowly going higher! 😀
-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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