Do I have the jist of the wheel strategy?

Discussion in 'Options' started by IronFist, Mar 7, 2021.

  1. Sell cash secured puts of a stock you wouldn't mind holding.

    If put is exercised, sell a covered call at a price that would make you a profit.

    If you still have the stock, do it again.


    An example:

    ABC is $20. Write an $18 put for $3. Make $300.

    Put is exercised.

    Now you have 100 ABC.

    Say ABC is now $17. Write a $20 call for $0.60.

    Does ABC stay under 20? Do it again. Does ABC close above 20? Collect your gain + sale.

  2. ET180


    Yes, that's it.
  3. JSOP


    And wouldn't mind overpaying.

    And wouldn't mind selling it for less than what it could've been.

    And be prepared for the possibility of the huge crash of the underlying dropping more than what all of the earned premiums can cover.
  4. ZBZB


    YOu could sell the call at $18 as it would be profitable.
  5. You know there is extensive research into covered calls and it is the worst strategy- I'd buy a stock and tuck it away until it doubles. Trade options in their own right-that's what the indexes are for -and there is no CEO of an index who gets caught partying with Jeffrey Epstein
  6. Or worse yet, get caught when the underlying explodes higher with short calls on hand. Regardless of whether I got exercised or not.

    JSOP likes this.
  7. hilmy83


    Why is the option market still stuck on this 100 share per contract? Whats the issue to moving to variable shares?
  8. JSOP


    Round lots, easier for MM's. My guess.
  9. Woudn't you lose money versus doing it the selling stock way?
  10. Why is it overpaying?

    So you're saying just hold the stock?

    It could drop, but are we talking like from $80 to $1 so that the price of the calls will be very little?
    #10     Mar 8, 2021