Hey Wealth Builders!
As anticipated, we had a relief rally this week after the turbulent sell-off from last week. Though I wish the markets can start retracing back up, I'm still not entirely convinced that this will happen until we get positive news that the Federal Reserve will slow or pause the increase of interest rates and if the next CPI data shows that inflation is declining.
Technical Analysis 📈
SPY
Honestly, there isn't too much to see as we are still trading between the downward trending channel. Like what I've mentioned before, don't let these relief rallies fool you. We want to make sure we are disciplined and make our decisions based on data (technical analysis, earnings reports, news from the Federal Reserve, etc.). Until we break out of our downward trend and start to see higher highs and higher lows, we still remain bearish to neutral with the markets.
If we see any pattern changes, I will let you all know how we can start to pivot our strategies.
QQQ
Here's QQQ. We are nearing the top of the resistance line.
DIA
The same goes for DIA.
AMD
AMD is bouncing around the $87 level. If we have another drop, I anticipate the stock revisiting the $73 levels.
AMZN
AMZN also seems to be nearing its resistance line. Even if it breaks above, I expect the stock to at least consolidate sideways before making any massive moves to the upside. More on this in the Premium Positions this week.
AAPL
The same goes for AAPL as I believe it's still not really going to make any large moves to the upside in the next couple of weeks.
Upcoming Earnings 📰
Major corporate earnings are coming up in about a month. I recommend making a note of this in your calendar so you can tune in to see how your companies are doing in a revenue stand-point.
If you have past covered call positions, you can consider selling out anywhere between 30-60 days until expiration. I know the 60-day mark breaks my usual guideline, but I want to take advantage of collecting higher premiums from the high extrinsic time value and implied volatility caused by upcoming earnings. If you are an advanced trader, you know that we can always close our positions early to lock in our profits.
If you have long-term holds, you can also sell covered call positions against them. However, I would go further out of the money and choose a delta around 0.10 to decrease the chance of getting your shares called away. I would only do this if you are comfortable with letting your shares get called away.
For me, I have been selling calls against some of my long-term holds:
AAPL: Aug 19 $155 Strike Call
AMZN: Aug 19 $135 Strike Call
AMD: Aug 19 $120 Strike Call
MSFT: Aug 19 $370 Strike Call
V: Aug 19 $225 Strike Call
Of course, I also have multiple bear call spreads paired with these covered call trades, as many of you have seen me write about over the past several months.
Whenever I experience a sudden drop in the markets, I will buy back and roll out (BBRO) my positions. This means that I will buy back my contracts for a lower price due to the drop in the underlying and theta decay, and resell/roll out to a further expiration date to collect more income.
Ask Steve 💭
Let's see what some of our members asked this week. Here are the top questions we received:
Q1: In late April 2022 I bought 200 shares of $AMD with the hopes to generate monthly income selling covered calls (my average cost per share is $94.75). Currently I am down $2,600 due to $AMD trading at $81.57 as of Friday 6/17/2022.
What would be the best advice to scale back to more Dow Jones stocks to ensure I follow the road map you provide for students. There are a lot Geo political factors causing $AMD to drop, but I would hate to sell at the moment. Thanks!
A1: We hear your frustration, Joshua. The market has been downward trending and growth stocks are typically hit the hardest during times of uncertainty. However, there are still strategies we can use to generate monthly income!
We recommend to stay patient and continue selling covered calls at your cost basis at around 6-8 weeks out. Once we see a market reversal with positive news and sentiment, you can consider reallocating your monthly contributions, premiums, and dividends into DOW 30, dividend-paying stocks. Examples of stocks I favor are AAPL and MSFT, which are the dominant market leaders. If you want to diversify, you can consider investing in SPY or VOO.
Q2: I now understand why you keep saying not to buy a whole bunch of growth stocks all at once and to have proper allocation. I kept dollar cost averaging over the past several months and I feel like I'm making my portfolio worse. Any suggestions?
A2: It's no worries. This is a lesson learned, so when we move forward, we can have the right mindset and strategies.
Right now, I would keep making your monthly and weekly contributions. Again, let's wait for a positive signal from the Federal Reserve before buying more assets. Even if we do start to see positive sentiment, we never want to go "all in" and to always have a conservative approach with slowly scaling in with our positions.
Q3: I want to say thank you for showing us how to do bear call spreads. This is weird because I feel like I'm making the majority of my money WITHOUT buying the actual stocks. This isn't a question. Just wanted to say thanks Steve!
A3: I'm glad you are able to see the power of setting up bear call spreads! Yes, this trade is amazing since we are utilizing leverage to sell contracts without initially owning the shares. Keep at it and keep me posted.
📌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.
📌Steve's Recommendations 💡
I'm going to pin this here since many people ask similar questions each week about why I'm hesitant with starting new positions. Until I see any trend changes or updates with the news, we will pivot our strategies. In the meantime...
I don't recommend starting any new wheel positions (selling new covered calls or cash-secured puts) until there is a trend reversal and positive market sentiment.
Through it may not matter in a long-term lens, I don't recommend buying any shares or ETFs for the long-term at the moment.
Continue to buy to close past covered call positions once they shrink down to around 50-80% of their values, and roll out to a further date to collect more premium. This is a great environment to sell short-term options as IV is high due to all the fear. I favor 30 to 45 day expirations. It's a boring and repetitive process, but it's like collecting free money while 95% of other retail investors are panicking.
If you have more than 100 shares of long-term positions, you can consider selling 30 to 45 day covered calls at around a delta 0.10 to bring in cash.
Continue to deposit money into your account.
Continue to set up bear call spreads.
Let your capital stay as cash so we can have plenty of ammo when the bull market returns. And trust me, when it does, it will be glorious since we will be prepared.
Stay positive and patient. I know it's easier said than done, but keep in mind that you have knowledge on how to still generate income during a downward market. This is something that more than 95% of retail investors don't know how to do!
Stay smart, and invest and trade strategically. You got this! 🙂👍
-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.