Wheel strategy un hedged

Is there any need to hedge if you just keep taking assignment of shares? If you ignore your break even when selling calls it would be no different than holding a dividend stock where in a downturn, you have unrealized losses but continue to collect dividends, except your dividends will be in the form of premium?

 

I highly doubt you'll say the same just 15 minutes prior to expiration.

 

All the big gains I have made came after holding losses...you never get the bottom anyway lol..its usually a legging in/averaging down process. There is no difference in the immediate between closing the put option for a loss, and just taking the assignment. If you started the wheel on July 31 ($198), and then just held the position through the entire downturn Oct27 ($162), you are only down $-3600 (1 contract).

From a spreadsheet looking at that situation if you continued the (daily) wheel, starting July 31, you would be back into profits with $3764 on Oct27. So clearly the numbers show it is beneficial to take the shares and continue to sell premium.

 

Selling opt's give you premium in exchange for volatiltity risk. No matter how you think of it, there is no extra alpha in it.

 

In a bull market and non levered

 

Those results were during the decline from $198 on July.31 down to $162 Oct.27

I tracked every day and accounted for when I would have been assigned at 1 otm, and when I would have been called out at 1 otm, including all the premium collected along the way.

 

Yes there is, closing the option without taking assignment performs way worse than taking the assignment and continuing to sell premium. Whether I backtest 10 days, 90 days, 365 days, 1000 days the P/L is consistent with the same amount of contracts.

 

How will you collect premium if your avg price far above current price? Are you going sell calls below your avg price to get meaningful premium?

 

Hea meant selling puts, i believe.

And he averages down but instead of the underlying he just sells (longer term, maybe?) puts so he's avg entry is lower thanks to the premium.

 

I guess that's the answer, but if you are selling calls below your average price, then there is a chance you will have to take losses on your calls (or realize your loss on the shares).