News Snapshot

• Dip Buyers on Strike? Market Correction Has Investors Second-Guessing

• Last Thursday (March 13th), the S&P 500 Closed in Correction Territory, Down 10.1% from its February Highs. Here is a History of Stock Market Crashes.

• Fleeing to Safety: Investors Bet on Gold and Foreign Markets

• Tesla's Market Share Erodes Amid Fierce Competition and Analyst Downgrades; It’s Down >50% from December Highs

TL;DR

“Good-To-Know’s”

Corrections are not always caused by specific events but can stem from shifts in investor sentiment, macroeconomic changes, or simply the natural ebb and flow of market activity. They can offer buying opportunities for investors with a long-term outlook, as stock prices may become more attractive when they fall by significant margins. However, predicting the end of a correction is difficult, and some investors may choose to wait for signs of stabilization before re-entering the market.

Relevant Quote(s) I Like

Thought Throttle

If the stock stays above the strike price, the option expires worthless, and the seller keeps the premium. If the stock falls below the strike, they must buy it at that price, effectively acquiring shares at a discount while still bearing the risk of further declines. For a brief example and overview of a cash-secured put, you can review this article.

In last week's edition, we covered how to search for the specific option's contract to utilize. In this edition, we will look at what metrics to consider when selling cash-secured puts. You sell CSPs on stocks where your sentiment is ‘bullish,’ so this information is relevant to any trader/investor.

Important Note: It’s important to recognize that it would be grossly arrogant and unrealistic for me to say that I am going to fully cover both fundamental and technical analysis in one newsletter. I will hit as much of what I focus on as a basis for where I spend the most time in the descriptions. I would definitely urge you to research further before developing a strategy.

Overall Market Outlook

Looking only at the metrics of the individual stocks and not of the overall market, would be like a sailor only checking the state of his ship and not the ocean/weather conditions that he is about to sail into. Yes, the specifics of the ship are important, but you need to know the environment that you are entering. In investing, it is important that we address the ‘ocean’s conditions.’ We can make sure this is done either via the Top-Down Approach or the Bottom-Up Approach.

The top-down approach begins with the overall market, as macro factors like GDP growth, inflation, and interest rates drive stock movements. Investors identify strong industries before selecting stocks that align with market trends.

The bottom-up approach focuses on individual companies, analyzing financial health, growth potential, and management quality regardless of economic conditions. Strong businesses can outperform even in downturns.

A Few Macro Metrics to Watch:

• GDP Growth Rate (Overall economic strength)

• Inflation (CPI/PPI) (Cost pressures, Fed policy impact) Interest Rates (Fed Funds Rate, Bond Yields) (Cost of capital, stock valuations)

• Consumer Sentiment & Spending (Demand trends, business revenue impact)

• Corporate Earnings Growth (Market-wide profitability trends)

Whichever method you choose, consider the broader market—even great companies struggle in recessions, while weaker ones may benefit from bull markets. Understanding macroeconomic trends helps manage risk and improve investment timing.

Stock Screening

To screen for stocks to sell CSPs on, there are a few baseline parameters that we need to keep in mind. We want the stock to be 'optionable.’ A lot of stocks don't offer options—crazy, right? To ensure that there is sufficient liquidity, we want 250,000+ daily volume, along with a decently large market cap, ideally ‘Mid’ to ‘Large’—I like to aim for a market cap of at least $5B. Since selling a cash-secured put contract is for 100 shares, I typically aim for a price per share of around $20 - $100.

Note: When setting screening criteria for stocks, it’s important to strike a balance between being too rigid and too lenient. While having a target price range—such as $20 to $100—helps maintain focus, slight deviations shouldn’t automatically disqualify a stock from consideration.

For instance, a stock priced at $103 or $18 may still meet other fundamental or technical criteria that align with your strategy. The key is to remain disciplined in your approach without being overly restrictive, ensuring you capture enough opportunities without flooding your list with unsuitable candidates.

With these parameters in place, we can be confident that the stock is one we could realistically sell an option on, ensuring it's a viable candidate. Now that we have a curated list of investible assets—our "optionable stocks"—the next step is to refine our screening even further, narrowing it down to "optionable stocks I like" based on additional factors.

There are a lot of fundamentals that we look for when selecting a stock, but we want our screener to consist of 'deal-breakers.' These are criteria that we absolutely want the stock to meet to even be considered further. For me, this includes:

• It's an American company (at least on American exchanges). Different countries have varying levels of regulatory requirements for stock reporting. I like to 'stick with what I know,' so to speak. This is just my preference; if you prefer stocks outside the US, tailor your portfolio accordingly.

• A debt-to-equity ratio of 2.5 or lower - I know 2.5 is still a higher, riskier level, but 1) not all debt is the same (Bank Debt is the worst, Bond Debt is the best), and 2) if everything else looks good, I will accept the tradeoff.

• Earnings growth of at least 5% YOY for the past 5 years. Earnings growth implies that the stock is still on the rise. ideally, the earnings growth would be higher, but this is the bare minimum that we are willing to accept.

• Finally, I want an ROIC of at least 7%. This indicates that a company is generating returns above its cost of capital, ensuring value creation rather than value destruction.

Other Metrics I Look Out For:

• Earnings Growth (Holistic) – At a minimum, we screen for 5% year-over-year (YoY) growth, but we also want to take a deeper dive into earnings trends. This means analyzing quarter-over-quarter (QoQ) and YoY growth, comparing actual earnings to estimates, and evaluating overall consistency. A steady upward trajectory is ideal, but if earnings fluctuate—such as strong growth in Year 1 and Year 3 but a significant loss in Year 2—it’s worth investigating further to understand the cause before making an investment decision.

• PE Ratio - the multiple of how much you're paying for a dollar of earnings. We want to compare this to the industry, along with the company’s historical levels. This is the end result, not a causal factor—don’t use this number alone.

• PEG Ratio - It is the PE Ratio/earnings growth rate. The lower the PEG, the better—more earnings growth at a lower valuation. Note: A lower ratio is important, but higher PE and growth are usually preferred, assuming it is the same ratio. Ex. A stock with a 15 PE and 15% Earnings growth would typically be preferable to a stock with a 5 PE and 5% earnings growth, even though they both have a ratio of 1.

• Cash per share - This is the company’s cash divided into a per share basis. This number can be subtracted from the share price if it is substantial and consistent.

• Return on Equity (ROE) - measures a company's profitability relative to shareholder equity, showing how efficiently it generates profits from investors' capital.

• Return on Assets (ROA) - evaluates how effectively a company uses its total assets to generate profit, making it useful for comparing asset-intensive businesses.

• Other Considerations: Are they buying back shares? Institutional Ownership? Insider Purchases? Duplicated Successes with room to grow? Is expansion speeding up or slowing down? Analysts Outlook?

This is the list of metrics that I use when evaluating investments, but your ideal investment may have different criteria. If you’re targeting turnaround plays, you may prioritize debt reduction, cash flow stability, and management changes over consistent profitability.

On the other hand, if you’re looking for high-growth stocks, you might focus more on revenue expansion, market potential, and reinvestment rates rather than traditional valuation metrics. The key is to align your analysis with your specific investment strategy and risk tolerance, as different approaches require different considerations when valuing the underlying asset.

There are endless factors you could analyze when evaluating a company, and it’s easy to get stuck in analysis paralysis. To keep things simple, I like to focus on five key aspects that give me a clear picture of where the company stands. These five factors help me cut through the noise and make more confident investment decisions:

Technical Analysis

If the fundamentals are the key to answering what to purchase, then technicals are the key to answering ‘When to purchase?’ Many investors only focus on fundamental analysis and totally disregard technical analysis as mostly hokum. However, it is rooted in behavioral finance, recognizing that market prices reflect collective investor psychology and repeatable patterns.

Also, numerous quantitative trading firms and hedge funds successfully incorporate technical indicators into their strategies, demonstrating its practical effectiveness in real-world use.

All this to say—technical analysis has merit.

Technical analysis, however, can quickly become overwhelming, with some traders using complex strategies I can’t even pronounce. But at its core, it’s just another tool to refine our approach. Once we’ve identified a stock (or a few) to sell cash-secured puts on, we can use technical analysis to time a more attractive entry into the position.

List of Technicals and a Brief Overview:

• Moving Averages – Smooth out price data to identify trends by averaging past prices over a set period; useful for spotting trend direction and support/resistance levels.

• Relative Strength Index (RSI) – Measures momentum on a scale of 0-100 to identify overbought (above 70) and oversold (below 30) conditions, signaling potential reversals.

• Moving Average Convergence Divergence (MACD) – Tracks the relationship between two moving averages to identify trend changes and momentum shifts through crossovers and histogram movements.

• Bollinger Bands – Use a moving average and standard deviations to show volatility; prices near the upper band suggest overbought conditions, while those near the lower band indicate oversold conditions.

• Fibonacci Retracements – Identify potential support and resistance levels based on key percentage retracements of a prior move, often used to spot pullback entry points.

• On-Balance Volume (OBV) – Uses cumulative volume to gauge buying and selling pressure, helping confirm price trends or potential reversals.

• Accumulation/Distribution Line (A/D Line) – Evaluates the flow of money in and out of a stock by considering both price and volume, helping determine the strength of a trend, or spotting false turnarounds.

• Stochastic Oscillator – Compares a security’s closing price to its price range over a set period to indicate momentum, often used to spot overbought or oversold conditions. 

• Volume Weighted Average Price (VWAP) – A benchmark that calculates the average price of a security weighted by volume, commonly used by traders to gauge fair value during a trading session.

• Average True Range (ATR) – Measures market volatility by averaging the range between high and low prices over a set period, useful for setting stop-loss levels.

• Ichimoku Cloud – A comprehensive indicator that provides support/resistance levels, trend direction, and momentum using multiple moving averages plotted as a "cloud."

• Parabolic SAR – A trend-following indicator that places dots above or below price action to signal potential reversals and trailing stop levels.

At the end of the day, technical analysis isn’t about predicting the future with certainty—it’s about improving the odds of making better entry and exit decisions. While fundamental analysis tells us what to buy, technicals help us determine when to buy, allowing us to capitalize on market trends, momentum shifts, and areas of support or resistance. Used correctly, these tools can provide an edge by aligning our trades with broader market sentiment.

That said, technical analysis should complement, not replace, sound fundamental research. No single indicator is foolproof, and relying solely on charts without considering a company’s financial health can lead to costly mistakes. The key is to use technicals as a guide, not a crutch—helping refine trade timing while staying grounded in a well-thought-out strategy.

By incorporating these indicators into our approach, we can make more informed decisions, improve risk management, and ultimately increase our chances of success in the market. So, keep learning, stay curious, and get to work—you can only learn so much in the world of theory.

Throttle Q&A

Where Can I Find More Information on Technical and Fundamental Analysis?

There is a plethora of information out there on both fundamental and technical analysis. Many traders fall into habits of only looking at one or the other when in reality, they both can be properly utilized in your investment decision-making.

Technical Analysis

Investopedia offers a comprehensive range of articles/tutorials on technical analysis, including chart patterns, indicators, and various technical strategies.

StockCharts offers educational content on technical analysis, including free resources and tools like charting software.

The CMT Association offers certifications in technical analysis and provides resources, webinars, and a network of professionals.

On YouTube, you can find technical analysis videos focusing on teaching traders how to use charts and technical indicators effectively. Two good ones are The Chart Guys and Rayner Teo.

Some good books include:

• "Technical Analysis of the Financial Markets" by John Murphy

• "Market Wizards" by Jack D. Schwager

• "How To Make Money In Stocks" by William J. O'Neil

There are some good groups/forums like r/technicalanalysis, Investing.com forums and StockTwits, which is a social media platform focused on financial markets

Fundamental Analysis

Investopedia, similar to their technical analysis information, offers a range of articles/tutorials that cover the fundamentals of stock analysis, financial ratios, and valuation methods. 

Yahoo Finance is widely used for its easy-to-access financial data, including balance sheets, income statements, and stock price history. It’s a great resource for beginners to view and analyze a company’s financial health. |

The Motley Fool provides beginner-friendly articles, guides, and videos on understanding stocks, financial ratios, and analyzing companies from a fundamental perspective.

On YouTube, there are many channels that focus on fundamental analysis. Some of the most notable include The Plain Bagel, Investing with Tom, and Financial Education

Some Good books include:

• "The Intelligent Investor" by Benjamin Graham

• "Security Analysis" by Benjamin Graham and David Dodd

• "How to Read Financial Statements" by John A. Tracy

• "One Up on Wall Street" by Peter Lynch

• "Security Analysis for Investors" by John C. Bogle

There are also great online forums/communities like r/Investing and Bogleheads

What Are Some Other General Things To Note And Look Out For?

• Investors typically buy dividend stocks when the market is going down, since the steady dividends act as a floor.

• A stock’s book value can both overstate (Sometimes you sell off assets for $0.20 on the dollar, etc.) and understate (precious metals are listed at a lower value).

• Inventories growing faster than revenues is a bad sign—buildup leads to less profitability.

• Get out of situations quickly where the fundamentals get worse but the price increases—go where fundamentals are good but the price declines.

• Look at how sales and earnings change in relation to one another—increases in earnings can be inflated through cost reduction.

• Watch out for earnings deceleration—be aware of 2 to 3 periods of material slowdown.

• A common ‘back-hand’ measurement to see a potential bull market future price of a stock is 130% x Current PE x Expected Earnings.

• Know the quality of the institutional investors along with the quantity—they make the stock move, so some ownership is important.

• Insiders may sell for a variety of reasons, but they only buy for one.

There are thousands of ‘stock-picking’ tips, but these are the ones that came to mind quickest. The key, however, is to do your research, stay humble, and constantly be in a mindset of learning. Once you have ‘figured it out,’ a rude awakening is ahead.

How do technical indicators impact the decision to sell or roll a cash-secured put?

Technical analysis is vital when selling or rolling cash-secured puts. Key indicators to focus on include:

• Support and Resistance Levels: If the stock is trading near a strong support level, it may be less likely to fall below your strike price. Conversely, if it's nearing a resistance level, the price may struggle to go higher, indicating potential downside risks.

• Implied Volatility (IV): A high IV means premiums for options are higher, so selling a cash-secured put during times of high volatility can increase your income. However, it also means there’s more uncertainty in the stock price.

• Moving Averages (MA): When a stock is trading above key moving averages, it can indicate an uptrend, suggesting the likelihood of assignment might be low. If the stock is below moving averages, there might be a higher risk of it falling below your strike price, which could lead to assignment.

By using technical indicators, you can gauge the timing and price points for selling and rolling your cash-secured puts effectively.

What are the Tax Implications on Cash-Secured Puts?

When selling cash-secured puts, the tax implications depend on whether the put is exercised and the premiums received:

• Premium Income: The premium you receive from selling a cash-secured put is considered short-term capital gains and taxed at your ordinary income tax rate. This applies whether the put is exercised or expires worthless, as the IRS treats the premium as income the moment the option is sold.

• Put Exercised (Stock Assigned): If the put is exercised and you are assigned the stock, the premium you received reduces your cost basis for the stock. When you sell the stock, the capital gain or loss is calculated based on the difference between your selling price and the adjusted cost basis. If you hold the stock for more than a year, any gain will be taxed as long-term capital gains; if sold within a year, the gain is taxed as short-term capital gains.

• Put Expires Worthless: If the put expires worthless (the stock price stays above the strike price), you keep the premium, which is taxed as short-term capital gains. No further action is required until you make another trade.

In summary, the premium income is taxed as short-term capital gains, and if you're assigned the stock, the premium lowers your purchase cost basis, affecting how capital gains or losses are taxed when you sell the stock.

Got any questions or comments? Feel free to reply to this email—we’d love to hear from you!

If you found this helpful, feel free to share or forward this email to anyone who might be interested! We appreciate your support.

Disclaimer

The information provided in this newsletter is sourced from reliable channels; however, we cannot guarantee its accuracy. The opinions expressed in this newsletter are solely those of the editorial team, contributors, or third-party sources and may change without prior notice. These views do not necessarily reflect those of the firm as a whole. The content may become outdated, and there is no obligation to update it.

This newsletter is for informational purposes only and does not constitute personal investment advice. It is not intended to address your specific financial situation and should not be construed as legal, tax, or accounting advice, or as a recommendation to buy, sell, or hold any securities. No recommendation is made regarding the suitability of any investment for a particular individual or group. Past performance is not indicative of future results.

We strongly advise you to consult with a financial advisor before making any investment decisions, including determining whether any proposed investment aligns with your personal financial needs.