Hey Investors and Traders!
Whoa! Looks like we had another slight sell-off this week, especially with tech companies. It might be due to all the IPOs (initial public offerings) that have been happening the past few days. Sometimes Smart Money will sell some shares to have a little free cash and speculate a little bit with these over-hyped stocks. Remember what happened to Uber and Lyft last year? The stocks shot up for a bit, but after all the excitement fizzled, Smart Money went back to investing in the tried-and-true stocks that actually had historical evidence that they were fundamentally sound. Don't be a cat and get distracted by shiny objects. 😉
Here are some notable price movements in the stocks we're trading:
Microsoft MSFT
Monday Open: $204.24
Friday Close: $200.39
Apple AAPL
Monday Open: $114.72
Friday Close: $106.84
Advanced Micro Devices AMD
Monday Open: $76.80
Friday Close: $74.93
Trade of the Week:
Reselling your Covered Calls
Many of you have sold covered calls on AMD at the $82 strike and MSFT at the $212.50 strike around a month ago and your calls expired this past Friday. If this happened, sell another call against your shares at or around the same strike as you did before. You can either choose the 4-6 week expiration date since we're in a pullback and you can collect more premium due to the extra extrinsic value in the options.
Keep in mind of earnings in October. MSFT has earnings on October 21, AMD has earnings on October 27, and AAPL has earnings on October 28. If you select an expiration on or after the week of earnings, you'll notice that premiums are larger due to higher implied volatility.
Starting a New Wheel: Selling a Cash-Secured Put on AMD
AMD's Current Price: $74.93
Capital needed: $7,250
Sell at the Expiration Date: October 16, 2020
Select the Strike: $72.50 (Willing to buy the 100 shares at this price)
Premium you'll receive: $330
Cost Basis: $72.50 - $3.30 = $69.20
Note: If you want to be more conservative, you can select a strike lower than the current price. You can consider choosing the $70 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's Current Price: $200.39
Capital needed: $20,000
Sell at the Expiration Date: October 16, 2020
Select the Strike: $200.00 (Willing to buy the 100 shares at this price)
Premium you'll receive: $735
Cost Basis: $200.00 - $7.35 = $192.65
Note: If you want to be more conservative, you can select a strike lower than the current price. You can consider choosing the $195 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's Current Price: $106.84
Capital needed: $10,625
Expiration Date: October 16, 2020
Strike: $106.25 (Willing to buy the 100 shares at this price)
Premium: $535
Cost Basis: $106.25 - $5.35 = $100.90
Note: If you want to be more conservative, you can select a strike lower than the current price. You can consider choosing the $102.50 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.
Managing your risk for the Wheel Strategy
Make sure you're diversifying your Wheels with different stocks, staggering your calls, choosing different strikes, and entering the Wheel at different prices, so you can spread your risk.
Earnings Report:
On Tuesday, Adobe Inc. (ADBE) reported fiscal third-quarter results that beat Wall Street estimates. Adobe reported net income of $955 million, or adjusted earnings of $2.57 per share, compared with net income of $793 million, or $1.63 a share, in the year-ago quarter. Revenue rose 14% to a record $3.23 billion from $2.8 billion a year ago. Fourth-quarter guidance was also above estimates. Chief Financial Officer John Murphy stated that "Normally, Q3 is a seasonally slow quarter for us, but small businesses and education fully embraced digital tools during the pandemic."
Apple News:
This week, Apple announced their release of Apple One, which is the newest subscription service from this tech giant that combines some of Apple's biggest products into one package. The service will include iCloud, Apple Music, Apple TV Plus, Apple Arcade, Apple News Plus and Apple's newest service, Apple Fitness Plus that offers daily workouts and advanced fitness tracking. The service starts at $14.95, for an individual plan; $19.95, for a family plan and $29.95 for the premium plan that includes the most iCloud storage.
As you may know, subscription businesses, like streaming services, cloud storage, and Office products, are what's hot right now and a lucrative way for companies to rake in a lot of dough on a consistent basis. Are we bullish on Apple? You bet we are. 😃
Final Thoughts:
From what we talked about in our "Ask Steve" video this week, no one can predict the timing, depth, or length of a stock market pullback or correction with absolute certainty. Just know that these fluctuations are a normal part of investing. Since 1950, the S&P 500 has, on average, experienced a 5% pullback 3 times a year, a 10% correction once every 16 months, and a 20% decline every 7 years.
Stay patient, 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.