by Ben Weiss, for the Call to Leap Team
We saw some significant ups and downs on the market this week so I'm proceeding cautiously with opening new positions. This time last week, the sentiment was strongly bearish, at least in the short term. We saw a bullish bounce back in the second half of the week, but I'm not convinced yet that this trend will hold. Strong earnings results this upcoming week from major companies including AMZN, AMD, and AAPL may serve as a catalyst to drive the market in one direction or the other more clearly.
Ben’s trades this week
Why risk it?...I bought-to-close some of my puts that had achieved 50%+ decay to take some risk off the table. In this uncertain market, I feel like any gains are good gains. With PYPL announcing earnings after market close on Tuesday, I wanted to close my CSP to lock in profits. While it's true I'm sacrificing some profit, the put option still had about a month left to expiration, and the risk heading into potentially volatile earnings wasn't worth it for me to try to capture the second 50% of profit.
I also bought-to-close my TQQQ $52 puts. This leveraged ETF had a big decline last week but then recovered nicely to turn profitable, really demonstrating the ETF's capability of moving fast in both directions. With the uptick in Nasdaq volatility recently, I was glad to profitably close the position that still had a few weeks until expiration. I'll look to re-enter a new position in TQQQ maybe after earnings season when volatility should settle down somewhat. Also, I still have a covered call position open in TQQQ that I'm monitoring closely. My goal is to have my 100 shares called away because holding leveraged ETF shares long term is typically not a good strategy.
Timing is everything...Steve sold-to-open a new CSP position in AMZN, as we'll talk about below. I've been eyeing opening a new bullish position in AMZN as well, though my plan is to wait until late in the day on Tuesday to open this position. AMZN announces their earnings after market close on Tuesday evening and my goal is to capture peak implied volatility (IV) for maximum premium.
Let's keep it rolllin'...On a down day AAPL closed my May 17 monthly expiration covered calls for around 90% profit, looking to roll them out further for more premium. Sure enough, AAPL bounced back up a few days later and I sold to open a new AAPL covered call for June 21 monthly expiration. With AAPL in a more neutral-to-bearish pattern, I chose to go further out in expiration (50+ days) to capture more extrinsic value. I chose the $180 strike which is right at my cost basis after factoring in all the covered call premiums I've received since being assigned the shares at $190. I considered the $185 strike alternatively in case AAPL were to make a run-up after earnings this week, but I went with $180 for more downside protection. I have one more covered call contract to fill on my AAPL shares, which I may look to open right before earnings this Thursday afternoon to capture peak IV, depending on how the stock performs early in the week.
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
Trade 1: GOOGL cash-secured put (CTL Level 1)
Expiration Date: May 17, 2024 (a "monthly" expiration)
Step 1: Have $17,000 cash as collateral
Step 2: Sell 1 $170 strike put option (delta 0.40) for $3.25/share
Credit/premium received: $325/contract (minus fees and commissions)
Thoughts: With GOOGL's strong bullish response after earnings, I opened a new near-the-money CSP with a relatively short time to expiration. Following such a strong gap up, there's always the potential that the stock could "rubber band" back down somewhat or maybe continue bullishly upward. With a delta 0.40, there is a higher chance this put option may expire in-the-money compared to other more conservative options I've sold lately. As always, I'm prepared to take assignment of the shares at the strike price if that occurs.
Trade 2: AMZN cash-secured put (CTL Level 1)
Expiration Date: May 17, 2024 (a "monthly" expiration)
Step 1: Have $17,750 cash as collateral
Step 2: Sell 1 $177.50 strike put option (delta 0.43) for $6.50/share
Credit/premium received: $650/contract (minus fees and commissions)
Thoughts: Keep in mind that AMZN reports earnings on Tuesday so premiums will be higher to reflect that higher IV as investors are unsure how the stock will react following earnings. With a delta 0.43, this near-the-money put option also has a higher risk of expiring in-the-money, similar to the GOOGL CSP above.
Go long!...I continued adding shares to my long-term positions this week, including some of my favorite ETFs like SPY, QQQ, and SCHD.
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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