by Ben Weiss, for the Call to Leap Team
The S&P 500 and Nasdaq indices broke through their previous supports and continued trending down this week so Steve and I are taking a more conservative and bearish stance for the time being. With such sharp declines in the indices this past week, there's always the chance for somewhat of a "rubber band" bounce back this week, so let's stay tuned.
Until recently, we had been spoiled with a long, mostly uninterrupted bull run since late 2023, but let's not forget that options trading gives us tools to profit in all market conditions. As we continue to see the market move bearishly, Steve and I are looking to setup bear call spreads to earn some premium even during a downturn. Need to brush up on how we trade spreads? Check out the Level 3 videos!
Ben’s trades this week
I'll take that, thank you very much...My options portfolio is still pretty bullishly inclined so the past few weeks of market selloff have challenged a number of my positions in tech stocks like AAPL, AMZN, and GOOGL. When possible, I'm looking to take some of my risk off the table and add to my "dry power" cash reserves to repair (roll down and out) positions that have gone against me, or to use the cash to open new bear call spreads. This week, I closed my cash secured put in GIS for a 50% gain. While the other 50% profit would have been nice to capture, I decided to buy-to-close early as the option still had a full month left to expiration and I can now use that previously reserved capital somewhere else.
I also closed out some of my AAPL May 17 covered calls for 90%+ gains as the stock has continued to decline and hover at/under the $170 level, causing the value of the call option to drop nearly to zero with lots of time left to expiration. If AAPL has even a modest up day this coming week, I'll look to sell a new covered call for a further-out expiration date, likely the June 21 monthly options expiration date (or "monthly OPEX").
Let's take it down a notch...For those of us trading options in TQQQ, we're probably well aware the leveraged ETF has taken a significant dip this week. This serves as a good reminder that leveraged ETFs can move quickly in both directions so we should be prepared to monitor and act to repair or close the position if it goes against us. Trading options in leveraged ETFs, even far out-of-the-money (OTM) has elevated risks associated and isn't for everyone!
With that said, the big price movement this week has certainly increased implied volatility (IV), making it potentially profitably to roll out and adjust my bullish put position. I took the opportunity to roll out my TQQQ $56 puts down to $53 and out another 2 weeks for a modest credit. If the Nasdaq continues to drop, I'll keep my eyes peeled for further opportunities to roll down and out to improve my position as I'd like to avoid assignment if possible (though I'd be ok taking assignment if it happens, per CTL guidelines).
In it for the long-haul...Even though I didn't open a new options positions this week, as always, I held true to the dollar-cost average (DCA) method and bought a few shares each of SPY, QQQ, SCHD. The DCA method allows me to check my uncertainty at the door about whether now is a good time buy or not, especially with so much perceived uncertainty right now. Who knows if the market will go up, down, or sideways? All I know is I'll continue to be disciplined about saving and investing no matter what.
Steve's trades this week
Like Ben, I'm taking a cautiously bearish stance currently. This week I pivoted from selling cash secured puts to selling bear call spreads and rolling out my covered calls on my existing long-term shares. I chose the following expiration dates and strikes for those new covered calls, aiming for low-delta options to avoid my long-term shares being called away:
SPY May 24 $538 call (delta 0.03) for $0.28/share or $28/contract
QQQ May 24 $460 call (delta 0.04) for $0.42/share or $42/contract
MSFT May 24 $450 call (delta 0.10) for $1.76/share or $176/contract
GOOGL May 24 $180 call (delta 0.09) for $0.69/share or $69/contract
AMZN May 24 $200 call (delta 0.14) for $1.45/share or $145/contract
AAPL May 31 $185 call (delta 0.11) for $0.72/share or $72/contract
Trade 1: AMZN Bear Call Spread (CTL Level 3)
Expiration Date: May 24, 2024 (a "weekly" expiration)
Step 1: Have $20,300 cash as collateral
Step 2: Buy 1 $230 strike call option (delta 0.02) for $0.17/share
Step 3: Sell 1 $205 strike call option (delta 0.10) for $0.89/share
Step 4: Set a buy-stop order for 100 shares at $203/share
Credit/premium received: $89 - $17 = $72 (minus fees and commissions)
Thoughts: I wanted to setup a bear call spread this week in case AMZN continues to drop. I will look to potentially open additional spread contracts next week to fill out my full position size.
Go long!...I resumed adding to my long-term holds this week, taking the opportunity to "buy the dip" and add shares to my positions in COST and WMT, the latter of which recently underwent a 3:1 stock split making individual shares much more affordable.
As always, tweak these positions to whatever you feel comfortable with and fits your risk tolerance and investing goals.
You got this, everyone! Stay disciplined, pay yourself first, and always invest in your greatest asset—yourself. 🙌🏻
- Ben and Steve
Friendly reminders from Steve and Ben:
Check out Steve's favorite checking and savings accounts
Click here and here to see different accounts that could fit your banking needs. Offers including great sign-up bonuses and higher interest rates to let your money work harder for you.
💪💰 Do you have the power?...Based off the great recommendation from Steve and lots of folks in the CTL community, Ben recently signed up for budgeting app Empower to get a better dashboard picture of all his various accounts and has been really been enjoying how easy it is to use. If you'd like to give Empower a try, click here to check it out!
Let your money work harder for you...
I'm also getting nearly 5% APY by having my cash sit in my Fidelity account as I sell my cash-secured puts. Here's the link if you're interested in getting started!
Manage Your Cash Against Rising Costs | Compare Our Rate | Fidelity
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