SPXL – Q1 2018 Earnings Season Play (2 min)

Hello FrugalBallers!

This is the first of many investments that I will be sharing with you as I help you navigate the treacherous seas of life towards financial independence! As many of you may or may not know, we’ve bounced back somewhat from the trade tariffs talks and other politically fueled volatility in the past month. I attribute such bounce back to the fact that the Q1 2018 earnings season has kicked off. Based on this, my guess is that, for now, market participants will be focused on company earnings for the next 3 to 4 weeks. There is much belief that this earnings season will be solid, so the investment that I propose plays on this belief.

There are two ways I would play this.

  1. (Beginner Strategy) Buy SPXL – SPXL is Direxion Large Cap Bull 3X Shares ETF.  SPXL is a triple levered ETF that essentially moves 3x the direction of the market. So, if the market moves 1% up, SPXL will technically move 3% up. Alternatively, THE RISK is if the market moves 1% down, SPXL will move 3% down. At the time of writing this, SPXL was trading at $44.30. It is risky, but I am bullish going into earnings, so this is a bullish play. However, I only recommend holding this for about 4 weeks, which is when earnings will taper off.
  2. (Advanced Strategy) Sell SPXL Put Options & Buy SPXL Call Options – For more advanced investors, I suggest selling the May 18 Put $42.00 strike and collecting the $1.03 premium, and using that premium to buy the May 18 Call $51.00 strike and paying the $0.16 premium. Alternatively, you can go closer to the strike price and buy a call, and pay more in premium if you think strike is too far out of the money. The goal is to not pay more than the $1.03 per contract collected from selling the $42.00 strike.

I like both plays, but #2 is the one I personally put on myself. Why I like it? I like collecting the $1.03 premium per contract by shorting the put… AND… I’m only paying $0.16 for the calls. The strike on the calls are about 15% above the current price, but my hope is that SPXL moves closer to the strike over the next 2-3 weeks on the heels of strong earnings. In which case, the returns will be much greater!

Regardless of what you do, I believe this earnings season is a great opportunity to pad your bank accounts and get you one step closer to financial independence.

Reminder: Leveraged ETFs are RISKY! Invest at your own risk and only after you’ve done your own research.

Until next time, happy investing 🙂

Yours truly,

Will

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