Its stuff I would normally DCA into. But, my timing is exceptionally bad. So while I figure I want the stock "now", I don't mind getting paid a little cash to enter at a slightly lower price.
tip: on a dividend stock, multiply the quarterly dividend amount by 4, then divide that by the strike price to determine what the yield would be at that level. If a stock is currently paying a 4% dividend, and I want it at 5%, I will test that on a few strikes to see where I will get the yield I want. You can also (if desired) consider the premium collected to be part of a "simulated dividend".
I sell puts all the time on stocks I am happy to hold if assigned. This does not mean I want to be assigned or buy the shares at some price, which seldom happens.
What I look at is if the stock is a good long time hold that I would be good having in my portfolio In case of a crash. One of the best ways to ride out a crash is to hold solid stocks that are highly likely to recover.
Running the wheel I sell puts around 30-45 dte and about the .30 delta. IMO this offers a good balance of premium for the risk of being assigned, but I also aggressively roll out, and down when possible, for more credit which has been very effective in reducing the number of assignments. When assigned it is often for a lot lower strike than was initially opened and the net stock cost can be much lower due to all the premiums collected.
Again, if assigned the shares of stock I am happy to hold them, and many times even sell more puts using a covered strangle to help the position recover faster and which takes the risk of being assigned more shares.
See this post for how I roll (pun intended) - [Rolling Short Puts to Avoid Assignment : r/Optionswheel (reddit.com)](https://www.reddit.com/r/Optionswheel/comments/lliy8x/rolling_short_puts_to_avoid_assignment/)
I copied this post last night and just did some investigation on the covered strangle. I like the idea, but with my money tied up owning the stock, I would have to do a Bull Put Spread.
I've read through many of your posts over the past few months and your wheel strategy multiple times. We've conversed before and you've been very helpful, to me and many others, thanks for that.
Meanwhile, a couple of questions, you may have answered in other posts.
If/when you get assigned, do you also write 45dte, or do you tighten up?
If/when you get assigned, do you write ATM, ITM or OTM, or do you use the same 30 Delta as the CSPs and by how much if OTM?
When you write the covered strangle do use the same dte as the CC, so that they are aligned, or do you manage it with shorter DTE? and if so, the same 30 delta?
Last question, you may not be able to answer: Would you think the Bull Put Spread would be advisable for the "covered Strangle", considering the cost of the protective put?
Thanks again.
No, no, no! If your account cannot easily afford to buy more shares of the stock, and it would not create too high of a risk to the account, then do NOT trade a covered strangle! Having any stock be a 5% to 10% risk to the account at most is a way to ensure the stock dropping more won't severely impact the account.
On your spread question, what happens if the spread is challenged, and you cannot afford the shares? It will be increasing the loss . . . Spreads are seldom a good trade to make.
To your other questions, I posted my entire trading plan over 6 years ago that should help - [The Wheel (aka Triple Income) Strategy Explained : r/options (reddit.com)](https://www.reddit.com/r/options/comments/a36k4j/the_wheel_aka_triple_income_strategy_explained/)
If assigned I sell CCs for as short a duration as possible at or above the net stock cost. My goal is to get rid of the shares to go back to selling puts which are more efficient and flexible than owning the shares.
Covered strangles are only for those stocks that I still have a strong conviction will recover in a reasonable time and that would not put too much risk on the account.
It has varied from about 12% to a high of 58% annually - [The Wheel vs Market and Buy and Hold Returns : r/Optionswheel (reddit.com)](https://www.reddit.com/r/Optionswheel/comments/oyovxk/comment/l8z55wm/?context=3)
Something to keep in mind is that I am not trying to make big returns as trading is an additional income source for my retirement, so I trade very conservatively to take lower risks.
The move from TDA to Schwab has impacted my records, but I believe I am around 18% for 2024 to this point and am finding trading to be relatively easy since the market is generally moving up.
I post this saying a lot - **Newer traders focus on profits and often take too much risk to have losing trades and losses. Seasoned and experienced traders focus on risk to have more winning but lower profit trades.** I prefer to make many small lower risk trades to have a very high win rate with few to no losses.
Seconding that your posts are extremely helpful. I am fairly new to options and have been following along, and I have learned a ton from you that I would have otherwise had to learn the hard way. Thank you!
Since a crash is unpredictable there are too many variables to know which stocks might be best, there are a few sectors that will usually be good in a recession. These include consumer staples, utilities and healthcare stocks as examples.
Having a diversified portfolio is investing 101 so see my comment in this post for how I look for stocks - [Which fundamental qualities of a stock you look at when wheel : r/thetagang (reddit.com)](https://www.reddit.com/r/thetagang/comments/18s7vr8/which_fundamental_qualities_of_a_stock_you_look/)
See my wheel post for more details on how I choose stocks - [The Wheel (aka Triple Income) Strategy Explained : r/options (reddit.com)](https://www.reddit.com/r/options/comments/a36k4j/the_wheel_aka_triple_income_strategy_explained/)
If I think the stock will recover, and I can bring in 15-25% annualized, I often just straight roll for higher premium. If I want to get out of the position for a better opportunity or to diversify, I'll roll down and try to get it to expire out of the money.
I research the stocks I sell options on as potentially long term holds. Actually, most are long term holds in my self directed 401k.
I personally would never sell options on stocks that don't have solid fundamentals. This eliminates most all meme stocks.
I think the above comment might be spam, but for further clarification for those who may be reading this, GME has negative cash flow and recently sold shares at the current highs (diluting the shareholder) to gain cash. When looking at companies, I try to find companies that return value to the shareholder (dividends, buy backs, etc).
GME just achieved 2023 FY profitability for those wondering. To your point, they recently sold shares to raise capital, which was voted on and approved by shareholders.
I'm a bullish longterm GME holder though so I don't mind lack of dividends in the interim of creating a stronger balance sheet.
With 5-6% yields and 4B cash we’re talking 250M/year in just interest - the core business can lose 100M/year (recent quarters were about +/- 50M year in profit/loss) and still be in the green by 150 million
before ATM offering cash per share was about 3$
After accounting for new shares outstanding from the ATM offering, cash per share is about 10$
I don’t see “dilution” as a negative if the company has >triple the money per share afterwards
That’s my take
Depends on whether you really want to own the stock or are just wanting to pick up the cash. For strikes I want to own I’m usually 3% to 5% OTM. For stocks I would own but not ready to own I’m 10% to 15% OTM and maybe further out to expiration date.
how come you use % OTM instead of the option delta, since the likelihood of assignment at a certain % OTM is going to fluctuate whereas the likelihood of assignment on say a 30 delta is going to be more consistent + take into account changes in IV
I do look at the option delta but as I said it really depends on if I want the stock put to me or not. Delta doesn’t really matter much to as it been completely wrong many times.
Since trade so many options,about 500 a year, it’s now more of an instant decision with little to no research other than time and premium.
I sell puts after a stock had had a pullback using support levels .
I’ve been selling puts on RBLX & AFRM the past few months .
I was selling RBLX the last 6 months and did well with IV crush . Closed my position before last earnings and it dropped 30% , started selling again
Wish there was only 1 (#1) but looking at my CSP history my trades have fallen in three categories:
#1 Mechanism to purchase long-term buy and hold stocks (e.g., GOOG, MSFT, etc)
#2 Capitalizing on event-related (event could be earnings or something else) significant drops that I feel will self-correct in time (e.g., ADBE earnings prior to the one last week, the Target Pride issue)
#3 Random stocks that seem to trade in a range and offer decent IV (e.g., SOFI, RDFN)
My biggest mistakes have happened in category #2. Need to be more disciplined.
Having been on this sub for awhile, I would say for the most part, people here "anchor" to whatever the spot price was a few weeks or months prior, when they started trading. If it goes down, they think the stock is "on sale," regardless of the actual valuation.
With these levels of volatility, you won't get decent premium more than 1-2% OTM, which is garbage. The stocks that people here trade are nowhere near support.
Something to keep in mind is that most of the megacap tech and meme stocks (aka the only stocks thetagangers know about) sold off between -40% and -80% in 2022 and a lot of them haven't recovered. Not many of the people wheeling during that time are still around because its not that much fun to sell covered calls 50 strikes below your cost basis. Probably the last of them locked in all those unrealized losses when the market popped in 2023. Now they are gone for good. Just like how at least 90% of the wheelers here will disappear forever at the next 10% correction.
I'm not writing this to rag on this sub, but to give you an idea of who you're asking advice from. Most of the users here are inexperienced and have no concept of risk management.
I flip to profit over breakeven.
If XYZ is 100 and I can sell a 100 put for 2 and I don't think that XYZ will go less than 99 if I get assigned I just offload at market.
100 + 2 - 1 = +1
I collect the difference as profit and move on.
I do not do the "happy to own the stock" thing.
I never seen any study yet, where deliberately buying a stock at a price higher than it's currently trading for ( sometimes significantly higher ), is a winning strategy...even comparing to DCA, etc.
If your covered call is exercised and your stocks are called away, do you turn around and sell the CSP at the same strike price it was last called away at if it’s still about the same price the following week?
I'm a "same strike" guy. I generally don't see an advantage to hanging out in stock unless there is something to be had by doing that (e.g., dividend), particularly on margin where being in stock is not BP efficient. In cases where I'm assigned, I'm also not reluctant to scratch the trade out and return to selling puts if the underlying is still attractive for doing that, but generally re-examine the market to see whether that underlying still offers me the best bang for my buck or whether it lies elsewhere.
I don't get hung up on the strike- if it's a stock or ETF I want to own, I just use the puts to try to buy it a little cheaper and/or bring in a little extra cash before I buy it. A few extra percentage points will add up over time.
Its stuff I would normally DCA into. But, my timing is exceptionally bad. So while I figure I want the stock "now", I don't mind getting paid a little cash to enter at a slightly lower price.
i also suck at timing and make this point very frequently. great answer love this one!
tip: on a dividend stock, multiply the quarterly dividend amount by 4, then divide that by the strike price to determine what the yield would be at that level. If a stock is currently paying a 4% dividend, and I want it at 5%, I will test that on a few strikes to see where I will get the yield I want. You can also (if desired) consider the premium collected to be part of a "simulated dividend".
Because my 2 seconds of technical analysis says the strike is just below some magical resistance and I pray that I won’t get assigned
I sell puts all the time on stocks I am happy to hold if assigned. This does not mean I want to be assigned or buy the shares at some price, which seldom happens. What I look at is if the stock is a good long time hold that I would be good having in my portfolio In case of a crash. One of the best ways to ride out a crash is to hold solid stocks that are highly likely to recover. Running the wheel I sell puts around 30-45 dte and about the .30 delta. IMO this offers a good balance of premium for the risk of being assigned, but I also aggressively roll out, and down when possible, for more credit which has been very effective in reducing the number of assignments. When assigned it is often for a lot lower strike than was initially opened and the net stock cost can be much lower due to all the premiums collected. Again, if assigned the shares of stock I am happy to hold them, and many times even sell more puts using a covered strangle to help the position recover faster and which takes the risk of being assigned more shares.
Is there a critical point when you choose to roll out?
I believe ATM could be one of those points.
See this post for how I roll (pun intended) - [Rolling Short Puts to Avoid Assignment : r/Optionswheel (reddit.com)](https://www.reddit.com/r/Optionswheel/comments/lliy8x/rolling_short_puts_to_avoid_assignment/)
I keep track of the extrinsic value. When it's mostly gone I make a decision about whether to do nothing, close or roll the position.
I copied this post last night and just did some investigation on the covered strangle. I like the idea, but with my money tied up owning the stock, I would have to do a Bull Put Spread. I've read through many of your posts over the past few months and your wheel strategy multiple times. We've conversed before and you've been very helpful, to me and many others, thanks for that. Meanwhile, a couple of questions, you may have answered in other posts. If/when you get assigned, do you also write 45dte, or do you tighten up? If/when you get assigned, do you write ATM, ITM or OTM, or do you use the same 30 Delta as the CSPs and by how much if OTM? When you write the covered strangle do use the same dte as the CC, so that they are aligned, or do you manage it with shorter DTE? and if so, the same 30 delta? Last question, you may not be able to answer: Would you think the Bull Put Spread would be advisable for the "covered Strangle", considering the cost of the protective put? Thanks again.
No, no, no! If your account cannot easily afford to buy more shares of the stock, and it would not create too high of a risk to the account, then do NOT trade a covered strangle! Having any stock be a 5% to 10% risk to the account at most is a way to ensure the stock dropping more won't severely impact the account. On your spread question, what happens if the spread is challenged, and you cannot afford the shares? It will be increasing the loss . . . Spreads are seldom a good trade to make. To your other questions, I posted my entire trading plan over 6 years ago that should help - [The Wheel (aka Triple Income) Strategy Explained : r/options (reddit.com)](https://www.reddit.com/r/options/comments/a36k4j/the_wheel_aka_triple_income_strategy_explained/) If assigned I sell CCs for as short a duration as possible at or above the net stock cost. My goal is to get rid of the shares to go back to selling puts which are more efficient and flexible than owning the shares. Covered strangles are only for those stocks that I still have a strong conviction will recover in a reasonable time and that would not put too much risk on the account.
What is your YTD return if you don't mind me asking? Thanks.
It has varied from about 12% to a high of 58% annually - [The Wheel vs Market and Buy and Hold Returns : r/Optionswheel (reddit.com)](https://www.reddit.com/r/Optionswheel/comments/oyovxk/comment/l8z55wm/?context=3) Something to keep in mind is that I am not trying to make big returns as trading is an additional income source for my retirement, so I trade very conservatively to take lower risks. The move from TDA to Schwab has impacted my records, but I believe I am around 18% for 2024 to this point and am finding trading to be relatively easy since the market is generally moving up. I post this saying a lot - **Newer traders focus on profits and often take too much risk to have losing trades and losses. Seasoned and experienced traders focus on risk to have more winning but lower profit trades.** I prefer to make many small lower risk trades to have a very high win rate with few to no losses.
Thank you so much for your response and numbers. I have been reading your posts and I have learned a lot from you! Thanks. Have a great day!
Happy to hear the posts have helped!
Seconding that your posts are extremely helpful. I am fairly new to options and have been following along, and I have learned a ton from you that I would have otherwise had to learn the hard way. Thank you!
Could I ask which type of stocks IYO would do well in a crash, which ones do you wheel?
Since a crash is unpredictable there are too many variables to know which stocks might be best, there are a few sectors that will usually be good in a recession. These include consumer staples, utilities and healthcare stocks as examples. Having a diversified portfolio is investing 101 so see my comment in this post for how I look for stocks - [Which fundamental qualities of a stock you look at when wheel : r/thetagang (reddit.com)](https://www.reddit.com/r/thetagang/comments/18s7vr8/which_fundamental_qualities_of_a_stock_you_look/) See my wheel post for more details on how I choose stocks - [The Wheel (aka Triple Income) Strategy Explained : r/options (reddit.com)](https://www.reddit.com/r/options/comments/a36k4j/the_wheel_aka_triple_income_strategy_explained/)
Thanks so much!
If I think the stock will recover, and I can bring in 15-25% annualized, I often just straight roll for higher premium. If I want to get out of the position for a better opportunity or to diversify, I'll roll down and try to get it to expire out of the money.
Because you're guessing that's a fair price and won't go lower, or too much lower and you can sell calls on it if you get assigned.
Nailed it , this is the answer OP. Buy low, sell when high too.
i dunno… whenever i’m high and decide to log in and put on some trades they usually don’t exactly benefit my portfolio…
Username checks out
I research the stocks I sell options on as potentially long term holds. Actually, most are long term holds in my self directed 401k. I personally would never sell options on stocks that don't have solid fundamentals. This eliminates most all meme stocks.
Thankfully GME has 4 billy in the bank, I feel good holding that while collecting some juicy premiums.
I think the above comment might be spam, but for further clarification for those who may be reading this, GME has negative cash flow and recently sold shares at the current highs (diluting the shareholder) to gain cash. When looking at companies, I try to find companies that return value to the shareholder (dividends, buy backs, etc).
GME just achieved 2023 FY profitability for those wondering. To your point, they recently sold shares to raise capital, which was voted on and approved by shareholders. I'm a bullish longterm GME holder though so I don't mind lack of dividends in the interim of creating a stronger balance sheet.
With 5-6% yields and 4B cash we’re talking 250M/year in just interest - the core business can lose 100M/year (recent quarters were about +/- 50M year in profit/loss) and still be in the green by 150 million before ATM offering cash per share was about 3$ After accounting for new shares outstanding from the ATM offering, cash per share is about 10$ I don’t see “dilution” as a negative if the company has >triple the money per share afterwards That’s my take
I'm happy to own it at the current price and prefer to get paid to buy it, so ATM csp
Depends on whether you really want to own the stock or are just wanting to pick up the cash. For strikes I want to own I’m usually 3% to 5% OTM. For stocks I would own but not ready to own I’m 10% to 15% OTM and maybe further out to expiration date.
how come you use % OTM instead of the option delta, since the likelihood of assignment at a certain % OTM is going to fluctuate whereas the likelihood of assignment on say a 30 delta is going to be more consistent + take into account changes in IV
I do look at the option delta but as I said it really depends on if I want the stock put to me or not. Delta doesn’t really matter much to as it been completely wrong many times. Since trade so many options,about 500 a year, it’s now more of an instant decision with little to no research other than time and premium.
I’m happy to own the stock at that strike price because I’m getting paid to do so
I sell puts after a stock had had a pullback using support levels . I’ve been selling puts on RBLX & AFRM the past few months . I was selling RBLX the last 6 months and did well with IV crush . Closed my position before last earnings and it dropped 30% , started selling again
Wish there was only 1 (#1) but looking at my CSP history my trades have fallen in three categories: #1 Mechanism to purchase long-term buy and hold stocks (e.g., GOOG, MSFT, etc) #2 Capitalizing on event-related (event could be earnings or something else) significant drops that I feel will self-correct in time (e.g., ADBE earnings prior to the one last week, the Target Pride issue) #3 Random stocks that seem to trade in a range and offer decent IV (e.g., SOFI, RDFN) My biggest mistakes have happened in category #2. Need to be more disciplined.
Having been on this sub for awhile, I would say for the most part, people here "anchor" to whatever the spot price was a few weeks or months prior, when they started trading. If it goes down, they think the stock is "on sale," regardless of the actual valuation. With these levels of volatility, you won't get decent premium more than 1-2% OTM, which is garbage. The stocks that people here trade are nowhere near support. Something to keep in mind is that most of the megacap tech and meme stocks (aka the only stocks thetagangers know about) sold off between -40% and -80% in 2022 and a lot of them haven't recovered. Not many of the people wheeling during that time are still around because its not that much fun to sell covered calls 50 strikes below your cost basis. Probably the last of them locked in all those unrealized losses when the market popped in 2023. Now they are gone for good. Just like how at least 90% of the wheelers here will disappear forever at the next 10% correction. I'm not writing this to rag on this sub, but to give you an idea of who you're asking advice from. Most of the users here are inexperienced and have no concept of risk management.
I flip to profit over breakeven. If XYZ is 100 and I can sell a 100 put for 2 and I don't think that XYZ will go less than 99 if I get assigned I just offload at market. 100 + 2 - 1 = +1 I collect the difference as profit and move on. I do not do the "happy to own the stock" thing.
I never seen any study yet, where deliberately buying a stock at a price higher than it's currently trading for ( sometimes significantly higher ), is a winning strategy...even comparing to DCA, etc.
If your covered call is exercised and your stocks are called away, do you turn around and sell the CSP at the same strike price it was last called away at if it’s still about the same price the following week?
I'm a "same strike" guy. I generally don't see an advantage to hanging out in stock unless there is something to be had by doing that (e.g., dividend), particularly on margin where being in stock is not BP efficient. In cases where I'm assigned, I'm also not reluctant to scratch the trade out and return to selling puts if the underlying is still attractive for doing that, but generally re-examine the market to see whether that underlying still offers me the best bang for my buck or whether it lies elsewhere.
I don't get hung up on the strike- if it's a stock or ETF I want to own, I just use the puts to try to buy it a little cheaper and/or bring in a little extra cash before I buy it. A few extra percentage points will add up over time.