Hey Investors and Traders!
It looks like a lot of the stocks we're trading and investing in had a green week. However, the overall S&P500 and DOW30 are still below the 50-day EMA and could be in consolidation the next couple of weeks. The NASDAQ, which are mostly made up of tech shares, barely closed above the 50-day EMA. Let's wait 1-2 more weeks to see if our stocks are make higher highs and higher lows before we consider adding a couple more shares to our positions. We want to get some more confirmation in our charts to see if we possibly found a bottom for our recent pullback.
Here are some notable price movements in the stocks we're trading:
Microsoft MSFT
Monday Open: $197.19
Friday Close: $207.82
Apple AAPL
Monday Open: $104.54
Friday Close: $112.28
Advanced Micro Devices AMD
Monday Open: $74.23
Friday Close: $78.06
Trade of the Week:
Reselling your Covered Calls
Similar to last week, many of you sold covered calls on AMD at the $85 strike, MSFT at the $225.00 strike, and AAPL at the $127 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. You should be able to collect another $200-400 worth of premium per contract. Woohoo!
Again, 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: $78.06
Capital needed: $7,700
Sell at the Expiration Date: October 23, 2020
Select the Strike: $77.00 (Willing to buy the 100 shares at this price)
Premium you'll receive: $400
Cost Basis: $77.00 - $4.00 = $73.00
Note: If you want to be more conservative, you can select a strike lower than the current price. You can consider choosing the $76, $75, or $73 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: $207.82
Capital needed: $20,500
Sell at the Expiration Date: October 23, 2020
Select the Strike: $205.00 (Willing to buy the 100 shares at this price)
Premium you'll receive: $600
Cost Basis: $205.00 - $6.00 = $199.00
Note: If you want to be more conservative, you can select a strike lower than the current price. You can consider choosing the $202.50 or $200 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: $112.28
Capital needed: $11,200
Expiration Date: October 23, 2020
Strike: $11,200 (Willing to buy the 100 shares at this price)
Premium: $570
Cost Basis: $112.00 - $5.70 = $106.30
Note: If you want to be more conservative, you can select a strike lower than the current price. You can consider choosing the $111 or $110 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.
Selling at Further Expiration Dates
Many of you sold 1-week, further OTM covered calls around 2-3 weeks ago and are regretting that move. Though they are tempting to sell, be mindful that you won't be giving yourself that much downside protection in case your shares fall. If you want to be more conservative, you may want to consider selling at the 4-6 week expirations dates. We are uncertain of what may happen in the next couple of days, so we want to play a little defense just in case.
Earnings Report:
On Thursday, Costco COST delivered strong fiscal fourth-quarter earnings. The company stated that their revenues rose 12.5% year over year to $52.28 billion. Same store sales climbed 11.4%, which was above the 11% consensus estimate. For the full fiscal year, Costco revenue grew 9.3%! If you want the full report, you can check out our Costco video that we posted this week.
Overall, we believe that Costco is a great long-term investment. If you want to start a position, we encourage members to buy 1-10 shares. Once the price of Costco goes up around 5-10%, or around $10-20, you can buy another round of shares. Remember to be disciplined in investing and to not go all in at once. Let the stock rise before investing any more.
Final Thoughts:
We had a bit of a bounce from last week. However, we aren't totally in the clear yet. We still want to see some higher highs and higher lows made to see if we are going to start trending back up again. There may be a possibility that we consolidate and move within a range for the next couple of weeks due to the November election coming up. Also, Smart Money seems to be on the look out for a second stimulus. If the Federal Reserve decides to pump more money, that's usually a good sign for the markets to go back up.
Remember to keep selling your calls to collect more premium. Isn't kinda nice to still make money even if the market can't decide where to go?
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.