Last Week’s Income Report
March 8, 2021
Well, March certainly came in like a lion this year.
The month’s first week of trading was a wild one as concerns about interest rates spilled over from bond to equity markets.
We saw more money rotate out of growth stocks, including tech and pandemic plays, and into cyclical sectors that tend to do well during an economic recovery.
Take a look at the chart below of SPDR S&P 500 ETF Trust (SPY), which tracks the broader-market index.
After hitting a high just above $390 on Monday, SPY swiftly dropped 5% through Thursday’s low. But stocks came roaring back on Friday, with SPY up nearly 2% and advancing 0.9% for the week.
If you think that was a wild ride, check out the chart of the Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100 index.
Between Tuesday’s high and Friday’s low, QQQ plummeted more than 8% before popping 4% to close the week down 1.7%.
Last week’s move lower in the tech sector marked a continuation of selling that began in mid-February. This has caused us to accept shares of Apple (AAPL) and Marvell Technology Group (MRVL) after we saw the put options we sold move into the money.
But we are employing a recovery strategy on these positions that involves selling calls against our shares to generate income and lower our cost basis. This strategy has worked well for us in the past, and I don’t see any reason it will not be successful this time around.
With AAPL we are talking about arguably (and I would argue this with anyone) the best company on the planet. And semiconductor maker Marvell is growing revenue and earnings at a double-digit clip. My point is that these are fundamentally sound (to put it lightly) companies that I am more than happy trading for an extended period of time.
We closed out one winning trade last week on Bank of America (BAC).
In Tuesday’s Live Trading Session, with the stock trading at $35.69, I told Options Income Blueprint members to sell the BAC Mar Week One (3/5) 35.50 Put for $0.40, or $40 per contract.
While that may not seem like a ton of cash, consider that we only had to tie up $3,550 in capital to cover our potential obligation. This means we had the potential to earn a 1.1% rate of return in four days, or 103% on an annualized basis, if this option expired worthless.
But we didn’t end up holding till expiration. By Thursday morning, BAC was trading at $36.24, and I told members to book profits.
We spent $0.12 to buy back the option, earning $28 per contract. That worked out to a return of 0.8% in just three days, or 96% annualized.
We have a number of call positions set to expire this week, in addition to AAPL and MRVL. If today’s action is any indication, tech stocks may continue to get hammered. However, with the Nasdaq entering correction territory — falling more than 10% from its Feb. 12 record closing high — perhaps we could see a reflexive bounce.
Whatever happens, we will continue to trade through it and take advantage of elevated volatility — and elevated option premiums — wherever we can.