by Ben Weiss, for the Call to Leap Team
US markets are closed this Monday in honor of Memorial Day so you can look to make your next trades and investments starting Tuesday morning.
The market showed mixed sentiment this week following a few weeks of solid upward momentum. Steve and I maintain a bullish outlook and opened a few new bullish positions, but we'll be keeping an eye on the S&P 500 and Nasdaq at or near their all-time highs, which could alternatively act as bearish resistance limiting the market from advancing higher in the short term.
Historically, May to October have been lower-performing months for the market, lending to the old adage "sell in May and go away." At CTL, Steve and I follow the dollar cost average approach and try not to "time the market" and its ups and downs, however we shouldn't be surprised if we see a bit of slow down ahead. Overall, I'm with many investors in being bullish for the remainder of 2024, but we'll pay attention to the market trends and use the various tools in our options trading toolbox as needed.
Ben’s trades this week
That's a wrap... I took the opportunity to buy to close (BTC) my one remaining put in AMD early for 70% profit, thanks to the stock's surge ahead of NVDA's earnings. This proved to be a good decision because AMD actually had a significant sell off following NVDA earnings on Thursday. While the $155 strike AMD put remained out of the money, that put's price spiked on Thursday which would have made it impossible to buy to close for a profit. That said, buying to close is totally personal preference. While I prefer to take the risk off the table and redeploy that capital in a fresh trade elsewhere, you may prefer to let the cash secured put ride to expiration to receive the full premium and keep it simple!
AMD: Buy to close 1 June 21 $155 strike put option. Release $15,500 cash collateral back to my account.
New Trade 1: EBAY cash-secured put (CTL Level 1)
Expiration Date: July 19, 2024 (a "monthly" expiration)
Step 1: Have $5,250 cash as collateral
Step 2: Sell to open 1 $52.50 strike put option (delta 0.31) for $0.97/share
Credit/premium received: $97/contract (minus fees and commissions)
Thoughts: EBAY had a significant bullish breakout this week, breaking free from resistance at the $52.50 level that has persisted since March and that corresponds to notable resistance back in Q1 2023. This CSP is slightly riskier as the short strike is near the money, however EBAY trades with sufficient options liquidity allowing us to roll our put out further and/or down in strike price if needed later. To give the trade more time to be right and collect more extrinsic time value, I chose the July expiration date.
New Trade 2: AMZN LEAPS call (CTL Level 2)
Expiration Date: June 18, 2026 (2-year expiration)
Step 1: Have $6,520 cash
Step 2: Buy to open 1 $140 strike LEAPS call option (delta 0.82) for $65.20/share
Debit/premium spent: $6,520/contract (plus fees and commissions)
Thoughts: I'm adding to the AMZN LEAPS call I bought last week. I see the stock finding support along the green dotted support line I drew above (within the longer-term, solid green line upward channel). 🚨Remember, buying LEAPS is a risker strategy than the Wheel Strategy as we're not guaranteed to make any profit (unlike receiving premium for selling options) and theta decay is not working in our favor.
New Trade 3: QQQ bearish call credit spread (CTL Level 3) Read caution below 👇
Expiration Date: July 19, 2024
Step 1: Have a brokerage account with margin approval
Step 2: Have $100 cash as collateral
Step 3: As part of a "vertical call" spread, simultaneously open one long call and one short call:
Buy to open 1 $445 strike call option (delta 0.72) for $20.86
Sell to open 1 $444 strike call option (delta 0.73) for $21.46
Step 4: Unlike other bear call spreads we've traded at CTL, I did not set up a buy-stop order below the short call strike.
Credit/premium received: $21.46 - 20.86 = $60 (minus fees and commissions). Note: when opening this spread, I was able to get paid the "net mid" premium which was more than the $60 we just calculated (closer to $75 actually), given the decent liquidity in QQQ. However, based on the bid/ask spread on the option chain shown above, the minimum net credit you should earn is $60.
Caution: This trade is a pure "hedge" play against the QQQ declining off its all-time high sometime between now and July. This is a risky and more complicated trade so make sure you understand spreads and your entry and exit plan before considering this position. If QQQ continues its bullish advance and stays above at least $444 through expiration, I will intentionally realize the max loss: $100 (spread width of $1 x 100 shares) - $60 (premium received at open) = $40 potential max loss However, if QQQ declines below $444 by expiration, the spread will expire worthless and I will keep the full original premium. This hedge will allow me to earn some profit while my otherwise bullish portfolio may be temporarily declining. To me, the position risk (i.e., the max loss) is worth the potential gain (i.e., the full premium), and if QQQ continues to advance bullishly, I'll happily take this very modest loss as much of the rest of my portfolio will be growing nicely. Regarding my chosen strikes, I would've rather picked strikes closer to at-the-money, like in the $450-455 range, however I wanted to keep the spread very tight at only 1-point wide to keep the max loss minimal. 1-pt spreads are not currently available at the money for the July expiration (you can see on the options chain that above $445 only 5-point intervals are offered), so I went about 3% in the money to find the closest strikes separated by only $1. Picking strikes further in the money raises the chances of the spread expiring in the money and realizing the maximum loss.
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
Steady as we go...I decided not to open any new positions this week, however that didn't mean I wasn't still investing! 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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