by Ben Weiss, for the Call to Leap Team
March Madness...The market had another positive week overall, although a little bit flatter compared to the string of recent strong bullish weeks we've seen. Many of our favorite megacap stocks for trading options, like AMZN, GOOGL, and even MSFT, are sitting at or near their all-time highs, which can make it tricky to jump into new bullish options. I see a few challenging factors at play:
Psychologically, traders will often get "stuck" trying to push the stock higher than its previous record, acting as resistance pressure pushing downwards.
On top of that, the broader market seemed less bullish this week with SPY and QQQ matching but not exceeding previous highs.
Finally, earnings season is approaching in 2 weeks, adding additional uncertainty and volatility into the market.
Too rich for my blood...While my overall outlook for the market and our favorite stocks has not changed fundamentally, for the time being I may play the megacaps a bit more conservatively and look for other bullish options opportunities elsewhere, ideally with high-quality stocks that have lower share prices and "notional values" for their options (ex. a $40 CMCSA put only requires $4,000 cash collateral). CMCSA, VZ, and HPQ are great examples. If my bullish thesis is right on these companies, I make a profit. If I'm wrong and the put doesn't become profitable right away, I might look to scale into my position with 1 or more additional contracts and capture more premium. This flexibility is possible because the notional value is comfortably lower (ex. I could open 4x $40 CMCSA put contracts with the same cash required for only 1x $160 AAPL put contract).
In fact, this week I added an additional 1 contract to my $29 HPQ cash-secured put position I initiated last week. HPQ stock price actually dipped slightly after I sold to open the first contract, so I opened a second contract for even more premium, lowering my average cost basis in the process. 👍
VZ also had a strong week. I closed both my $38 and $40 CSPs for 80%+ profit since they still had 20+ days until expiration and I didn't want to wait that long to earn the last few dollars when I could opt to take the risk of the table sooner.
I've got my eye on you...In addition to my new positions this week, I'm eyeballing potential new wheels in AMD and MRVL. These both represent riskier strategies as AMD is currently correcting off its recent all-time high and both stocks are more volatile in nature. However, their greater volatility can mean you can go lower/further out of the money when selecting your put strikes and still earn decent premiums with lower risk than a near-the-money strike. These two trade ideas are thanks to CTL members via Discord—thanks for the great, active conversation and excellent suggestions. We're definitely listening!
Last chance to do your homework!...Next week, I'll be doing a deeper dive into another technical analysis indicator I'd like to introduce you to: MACD, or Moving Average Convergence/Divergence. Check out my chart below on CMCSA, which includes this indicator at the bottom. In the meantime, your homework is to read this great introduction from Investopedia (one of my favorite sources for learning). Who said homework can't be fun? 🤓
Ben’s trades this week
Trade 1: PYPL cash-secured put (CTL Level 1)
Expiration Date: April 19, 2024 (a "monthly" expiration)
Step 1: Have $6,250 cash as collateral
Step 2: Sell 1 $62.50 strike put option (delta 0.16) for $0.44/share
Credit/premium received: $44/contract (minus fees and commissions)
Thoughts: I opened this position at the $62.50 strike but considered the $63 or more aggressive strike for premium. Ultimately, the open interest (OI) was significantly greater for $62.50, suggesting a broadly popular choice and offering a nice tight bid/ask spread. As always, please pick your positions and strikes to fit your risk tolerance and trading style!
Trade 2: GIS cash-secured put (CTL Level 1)
Expiration Date: May 17, 2024 (a "monthly" expiration)
Step 1: Have $6,750 cash as collateral
Step 2: Sell 1 $67.50 strike put option (delta 0.28) for $0.75/share
Credit/premium received: $75/contract (minus fees and commissions)
Thoughts: Revisiting General Mills after a few weeks off, I see the stock clearly breaking out of its previous horizontal bounded range into a fresh upward sloping channel at the beginning of March. Last week, GIS appeared to successfully test and bounce up off the blue 50-day moving average so I'm feeling bullish and selected a near-the-money strike but went out to the May monthly expiration to collect additional premium via more extrinsic time value. As always, I'll look to close this position out early if possible and redeploy the capital into other fresh opportunities.
Trade 3: TQQQ cash-secured put (CTL Level 1)
Expiration Date: April 12, 2024 (a "weekly" expiration)
Step 1: Have $5,800 cash as collateral
Step 2: Sell 1 $58 strike put option (delta 0.25) for $0.84/share
Credit/premium received: $84/contract (minus fees and commissions)
Thoughts: I've been enjoying selling revolving 2-week puts in TQQQ during this bullish run in the Nasdaq. The index had a choppy week but I see it continuing to obey its well-defined upward sloping channel. Additionally, I spotted what looks to me like the charting pattern called a "bullish pennant" (marked in yellow above) where a significant run up (flagpole) is followed by a quieter consolidation period (pennant). Often, this pattern is followed by bullish breakout, but as always, there are no guarantees! I chose a slightly conservative $58 strike, a balance between a healthy premium and some downside protection in case the bullish pennant theory doesn't turn out to be true.
🚨🚨🚨Caution: If you're not familiar with TQQQ, it's an ETF that follows the movement of the Nasdaq index fund QQQ. However, because it's 3x leveraged, it will increase or decrease 3 times the movement of QQQ. By nature, trading in leveraged ETFs can be highly volatile and isn't for everyone! I like trading TQQQ because of its much lower share price compared to QQQ, making it a more accessible way to trade in the broader Nasdaq index. Please reach out with any questions! 🚨🚨🚨
If you can't beat 'em, join 'em...While my long-term investing style typically involves buying index and sector ETFs (I like to pay someone a tiny fee to do stock research for me 😉), I will occasionally buy individual stock shares like Steve does. This week, I decided to start a new long-term position in NVDA. I used my brokerage's partial share buying program to buy 1/2 of a share (still almost $500!), and I may scale into a larger holding down the road. For context, many of us including myself already own a good amount of NVDA as 5% of SPY ETF is comprised of NVDA, as is 6% of QQQ. However, owning a few shares outright will let me slightly focus more on one of the most successful companies in the US currently.
Note: I have zero plans to buy lots of shares or trade options in NVDA as it's both very pricey and volatile to trade by itself.
In it for the long-haul...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. I like to stick to my schedule and buy a small number of shares every week regardless of the market's movement to keep me on track long term.
Steve's trades this week
Go long!...Like Ben, I see the S&P 500 index and some of my favorite stocks AMZN and GOOGL flattening out ahead of earnings in mid-April. For now, I'm continuing to add to my long-term holds and sell covered calls against those shares. I bought more shares of my favorite ETFs including SPY, QQQ, and SCHD as well as some of my favorite dividend-paying stocks including WM and META.
As always, tweak these positions to whatever you feel comfortable with and fits your risk tolerance.
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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