Welcome back to the Weekly Income Report. I took last week off, as I was travelling to our Investor’s Blueprint Live conference in Boca Raton, Florida. It was great to see many of you in person at the event!
And a big thank you to Jeff Wood for filling in last Monday. Jeff took a look at investor sentiment and what it could mean for stocks in the short and long term, especially if headline volatility persists. (If you missed Jeff’s article, you can check it out here.)
The S&P 500 had recently hit an all-time high, trading above 6,147 intraday on Feb. 19. Yet, as Jeff noted on Feb. 24, the CNN Fear/Greed Index was right in the middle of the “fear” threshold.
This gauge looks at seven different indicators — momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility and safe-haven demand – and how they deviate from the norm to gauge the market’s mood.
Since the S&P 500 topped out a week and a half ago, it has declined more than 3%. And the CNN Fear/Greed Index is showing “extreme fear.”
Perhaps this investor pessimism will wind up being a contrarian indicator. The market finally managed to put in a higher close on Friday after six straight days of selling. Yet, uncertainty remains high, as investors continue to worry about inflation, tariffs and geopolitical risks. Only time will tell.
Since we skipped a Weekly Income Report, we’re going to look back at the closeouts from the past two weeks. Here are all of the closed trades from Feb. 17-28:
First things first, while we managed to close 12 winning trades over the past two weeks, we also took a large loss on the Technology Select Sector SPDR Fund (XLK) in the 5K Challenge program. This position began as a straddle, but with the ETF stuck in a channel, we converted it to a bull put spread in an effort to reduce our capital commitment and recover the position.
While we managed to reduce our net debit through several rolls, the recent sharp sell-off in tech stocks caused us to be assigned shares on the top leg of our bull put spread. Rather than continue with this recovery position given the headwinds facing tech stocks at the moment, we chose to sell the shares and then sold the long put for a profit to reduce our loss.
That was the bad news. On the positive side, the trade we want to highlight this week is the Suncor Energy (SU) buy-write from the Options Income Weekly program, which delivered a profit of more than $1,600 and a 26% return thanks to a combination of options premium and dividends.
We’ve been trading this integrated energy stock Perpetual Income style since May. This means we were focused on long-term cash generation rather than short-term stock movements, which is a good thing when you look at the chart below.
We entered this trade on May 14, buying 200 shares at $39.55 apiece. When we exited the trade on Feb. 21, SU was trading at $39.49.
If you were a buy-and-hold investor, you would have nothing to show for owning the stock for more than nine months. What’s more, you would have been forced to stomach some fairly big swings simply to break even.
Like your buy-and-hold investor, Options Income Weekly members saw their shares decline slightly over the life of the trade. Yet, this was offset by the three dividend payments they collected, netting them $242 in cash, and the $1,412 in options premium they generated by consistently selling calls on the stock and rolling those calls roughly every two weeks.
So, while energy stocks stalled as concerns about a potential global economic slowdown weighed on demand and geopolitical tensions led to volatility in oil and gas prices, we were able to ride out the sector’s underperformance and walk away with a large profit on a stock that essentially went nowhere for the better part of a year.
And that’s the beauty of Perpetual Income trading, a tactic that we employ occasionally in Options Income Weekly and more frequently in the Income Masters program. While it may not be as exciting as trading short-term options for quick wins, it has resulted in some of our largest profits to date.
