Please discuss the way to handle this when you get assigned and the market goes down for 6 months - a year and the premiums shrink to almost nothing at the price you were assigned. Cherry picking scenarios where the market rallies after you sold the call is nice but often it won’t rally and the market will continue to run away from you. Thanks!
FYI - exercising takes some time for some brokers so perhaps a bi-weekly strategy is better since you lose a couple days if you get assigned. Currently using a monthly wheel with Tesla. But agree that you need an underlying that reliably goes up. Otherwise you get stuck with the shares. Maybe I’ll switch to SPY, lol!
If you have insufficient funds to take delivery then most brokers will cash settle the position. Meaning they will debit your account by the difference between the strike price and the market price. The wheel strategy will not work in this case because you don't have shares to sell calls against.
Most likely the broker will not allow you to start your position. This example is a Covered Call, not a Naked Call. You only get burned selling Naked Calls and your stock goes against you.
The catch is, after being assigned, SPY falls more and maybe 10% plus more, so you end up holding it with very little cover called premium. So, you collect pennies year long and empty your bank in one big down move.
Thanks for the video, but this is just the wheel strategy. It would probably be better to move further out of the money when you sell a covered call to capture some of the profitability on the up move.
Agreed. I could not find any explanation as to why one should sell covered calls at the same strike as for assignment. The only reason I can think of is premium consideration since the strike is ATM, which offers the highest premium and at the break even price. Your thoughts?
I use both Schwab SSE and TOS platforms. I know they are in transition but I currently use both for different reasons. I signed up for the webinar. Just wondering if the program uses a different proprietary platform, or any other comments on trading platforms.
Can anyone tell me what’s better , we not taking about cost of this , just trade itself: spx: 1 lot 15, 20 spread or 3, 4 lots with 5 spread, for credit spreads
Today is 1/5/2024 SPY closed $467.92. If I sell 1/12/2024 SPY put to receive $200 that’s the $467 strike. That is way too close to being ITM. That’s a delta of .42. Seems like you’re asking to get assigned. Too risky.
Your question highlights the only major risk of this strategy. He doesn't really explain it, except for mentioning that you want to do this with an asset that "will always go up". But the direct answer to your question is "just keep waiting". You'll notice at the end, there were several weeks where the premium was quite small, something like $9. In general there's 2 things to help reduce this risk: 1. Use this strategy on an asset that you don't mind holding on to if it takes a large dip 2. It's even better if you can use it on 2+ assets that aren't correlated, so that if one goes down you can still keep going with the other
One could also buy a protective put with longer expiration and further OTM if he doesn't want to ride the rollercoaster in case of a significant market correction. Of course this would eat into the profit but it would provide peace of mind if you don't want to get caught for too long on the CC side, chasing lower and lower premiums to keep the CC strike at cost basis, after a significant event or reversal.
@@theagemaway You only get the answer when you pay to become a prop trader with them in their cramped Manhattan office with the rest of the Options Bros
The first trade was made on Dec,30, 2022 for the option expiring the next Friday 1/6/2023. Seth says that the option expired worthless and he mentions the word "closed". Does that mean that the next trade actually started on Monday the 9th for the option closing on Friday the 13th. The new trade could not be started on the 6th because the market had already closed. I'm confused and need help. Thanks
There is a catch. If the SPY continues to drop, you sold call options will make less and less money each week. You also lose potential profits (big profits) if you sell call options and the price of the SPY sky rockets.
@@Tx.details If you are selling call options on the SPY shares you were assigned. You would not want to sell the SPY shares at a loss so you should at least sell them for the price you paid. As such, if the SPY falls below even more from your purchase price, the premiums you will make each week will be less (at out of the money call options have less value). If the SPY is closer to the price you paid when you were assigned, the price you will be paid for the premiums is higher. The worst case is you continue to hold the shares of SPY as they plummet in a market correction and lose money on the SPY shares themselves and you make next to nothing on the premiums. You'll be forced to hold the SPY position until they correct (which is the implication made in this video). Just pray the correction doesn't take months or years. It's better to do this strategy in an up trending market when starting out if possible.
@@Tx.details if you sell a SPY call at $400, and SPY goes to $405 by expiration time, your have to sell it for $400. Therefore you lose the opportunity to earn $5 per share - total of $500 per contract. Hope this helps.
this is highly risky, it can go anywhere with unexpected turns. its not that easy. you have to have average understanding of volatility and options before jumping on this
Hi Seth. I just wanted to say thank you for your informative video. However, I have a question regarding your example. In January, the user needed $37,700 capital to sell the first put. If the user had purchased SPY instead and held it for the entire quarter, they would have ended up with more than $40k since the stock went up to $409.39. This would have resulted in $2,400 in cash flow, higher than the options exercise cash flow. Am I missing something here?
One of the reasons people like to sell options with this particular strategy is that you're trading potential gains for guaranteed premiums. Since the premiums are guaranteed, you are also basically guaranteed to miss out on some gains though. Since none of us can see the future, some people like to go for a small guaranteed win versus a potentially larger but unknown gain (or loss)
@@theagemawaythanks I was having a hard time understanding why someone wouldn’t just sell the asset a week later. In this example the potential loss is time and holding on for longer than one should especially if it was a bear market.
why a trader should bet 40k to make 2k on yearly base? Isn't it better to invest it in $SPY, it goes up 10% a year and make 4k.. on top not sure if you counted your commissions. If you went long call on 40k last year on January, you will be up like 70-80% in a year. For me this strategy is not good r/r
No guarantee of the SPY going up every year. It “averages” 10% over several years or even decades. Options allow one to “potentially “ get out of a bad trade. No guarantees there either.
It’s a bit confusing for me. Maybe it would be better if you indicate sell and buy next to ‘call’ and ‘put’ option. That way, we can see clearly when to sell and when to buy. Or use different color fonts for sell and buy. Because I have to try and listen very very slowly when you said 'sell' and when you said ‘buy’. It can get a bit overwhelming for me. Nevertheless, thanks for coaching.
Being new to the Wheel Strategy, has anyone here used this successfully on a cheaper underlying? Just looking for examples. My trading account isn't at $40k+ yet (where SPY is currently). How about on a good solid stock instead of an index?
That is the reality of trading/investing. You can lose your money. You can accept the loss, roll the trade out in time or use another mechanism to defend your position.
Hey Bella, I'm a strong believer in "inclusion", and "diversity" is also great, i also love this idea of "equity". I want to phrase this correctly, because its not a baited question. Would you consider training people who look like you or Seth? I understand that whole D.I.E. thing, but there's a lot of older people who just didn't have internet and opportunities like people nowadays... You guys are doing awesome things to help "everyday people". Thanks
FYI: please stop with the sliding visuals. Very unsettling and does not help the audience focus on the presentation. Also, reading what is written on the screen seems redundant. We can read. Focus more on getting us to understand how to figure out where to set our trade points. Thanks, and I appreciate your efforts.
SMB Options trading workshop: tinyurl.com/4vbt5dk3
Please discuss the way to handle this when you get assigned and the market goes down for 6 months - a year and the premiums shrink to almost nothing at the price you were assigned. Cherry picking scenarios where the market rallies after you sold the call is nice but often it won’t rally and the market will continue to run away from you. Thanks!
Is there a volatility threshold where this strategy shouldn’t be employed?
10:15 Some Brokers don't offer that. Make sure they allow to use your cash as a collateral while being paid MM %
Schwab with TOS and E*TRADE with Power E*TRADE both allow you use your Money Market Fund as collateral.
FYI - exercising takes some time for some brokers so perhaps a bi-weekly strategy is better since you lose a couple days if you get assigned. Currently using a monthly wheel with Tesla. But agree that you need an underlying that reliably goes up. Otherwise you get stuck with the shares. Maybe I’ll switch to SPY, lol!
There is no such thing as an underlying that reliably goes up.
SPY IS KING
What if I don't have the cash collateral to cover the put I sell?
You make it sound very easy but I have been burnt with selling calls before too.
If you have insufficient funds to take delivery then most brokers will cash settle the position. Meaning they will debit your account by the difference between the strike price and the market price. The wheel strategy will not work in this case because you don't have shares to sell calls against.
Do you have a margin account?
Most likely the broker will not allow you to start your position.
This example is a Covered Call, not a Naked Call. You only get burned selling Naked Calls and your stock goes against you.
Why not do credit/debit spread?
The catch is, after being assigned, SPY falls more and maybe 10% plus more, so you end up holding it with very little cover called premium. So, you collect pennies year long and empty your bank in one big down move.
Question why are we not doing weekly calls ?
Thanks for the video, but this is just the wheel strategy. It would probably be better to move further out of the money when you sell a covered call to capture some of the profitability on the up move.
Agreed. I could not find any explanation as to why one should sell covered calls at the same strike as for assignment. The only reason I can think of is premium consideration since the strike is ATM, which offers the highest premium and at the break even price. Your thoughts?
I assume this only works in an up market. But my question is, if you back tested this, would your returns (22.6%) outperform the SPY?
I use both Schwab SSE and TOS platforms. I know they are in transition but I currently use both for different reasons. I signed up for the webinar. Just wondering if the program uses a different proprietary platform, or any other comments on trading platforms.
Tastytrade is voted the best platform for options and I have found it to be the case over the last 4 years
Can anyone tell me what’s better , we not taking about cost of this , just trade itself: spx: 1 lot 15, 20 spread or 3, 4 lots with 5 spread, for credit spreads
Thank you i am starting my traiding and your viedeos r very helpful
I've been targeting delta's, where did the at least $2 premium requirement comes from, and what is its basis? Thank you.
Today is 1/5/2024 SPY closed $467.92. If I sell 1/12/2024 SPY put to receive $200 that’s the $467 strike. That is way too close to being ITM. That’s a delta of .42.
Seems like you’re asking to get assigned.
Too risky.
Its because IV is so low right now, nobody is worried about losing their gains and buying puts to protect them.
What do you do when the stock price drops drastically below your buyback price?
Your question highlights the only major risk of this strategy. He doesn't really explain it, except for mentioning that you want to do this with an asset that "will always go up". But the direct answer to your question is "just keep waiting". You'll notice at the end, there were several weeks where the premium was quite small, something like $9.
In general there's 2 things to help reduce this risk:
1. Use this strategy on an asset that you don't mind holding on to if it takes a large dip
2. It's even better if you can use it on 2+ assets that aren't correlated, so that if one goes down you can still keep going with the other
One could also buy a protective put with longer expiration and further OTM if he doesn't want to ride the rollercoaster in case of a significant market correction. Of course this would eat into the profit but it would provide peace of mind if you don't want to get caught for too long on the CC side, chasing lower and lower premiums to keep the CC strike at cost basis, after a significant event or reversal.
@@theagemaway You only get the answer when you pay to become a prop trader with them in their cramped Manhattan office with the rest of the Options Bros
The first trade was made on Dec,30, 2022 for the option expiring the next Friday 1/6/2023. Seth says that the option expired worthless and he mentions the word "closed".
Does that mean that the next trade actually started on Monday the 9th for the option closing on Friday the 13th. The new trade could not be started on the 6th because the market had already closed. I'm confused and need help. Thanks
You can start whenever you want as long as you have the required cash to sell Puts or stock to sell Covered Call
Instead of letting CSP be exercised on expiration, why can’t we roll the short PUT down and out for credit. Your thoughts?
You won’t necessarily get a credit when rolling the strike lower if it’s deep ITM
Sounds so easy, there must be a catch
There is a catch. If the SPY continues to drop, you sold call options will make less and less money each week. You also lose potential profits (big profits) if you sell call options and the price of the SPY sky rockets.
@@billmanhillmanexplain again?
@@Tx.details If you are selling call options on the SPY shares you were assigned. You would not want to sell the SPY shares at a loss so you should at least sell them for the price you paid. As such, if the SPY falls below even more from your purchase price, the premiums you will make each week will be less (at out of the money call options have less value). If the SPY is closer to the price you paid when you were assigned, the price you will be paid for the premiums is higher. The worst case is you continue to hold the shares of SPY as they plummet in a market correction and lose money on the SPY shares themselves and you make next to nothing on the premiums. You'll be forced to hold the SPY position until they correct (which is the implication made in this video). Just pray the correction doesn't take months or years. It's better to do this strategy in an up trending market when starting out if possible.
@@Tx.details if you sell a SPY call at $400, and SPY goes to $405 by expiration time, your have to sell it for $400. Therefore you lose the opportunity to earn $5 per share - total of $500 per contract. Hope this helps.
this is highly risky, it can go anywhere with unexpected turns. its not that easy. you have to have average understanding of volatility and options before jumping on this
Hi Seth. I just wanted to say thank you for your informative video. However, I have a question regarding your example. In January, the user needed $37,700 capital to sell the first put. If the user had purchased SPY instead and held it for the entire quarter, they would have ended up with more than $40k since the stock went up to $409.39. This would have resulted in $2,400 in cash flow, higher than the options exercise cash flow. Am I missing something here?
One of the reasons people like to sell options with this particular strategy is that you're trading potential gains for guaranteed premiums. Since the premiums are guaranteed, you are also basically guaranteed to miss out on some gains though. Since none of us can see the future, some people like to go for a small guaranteed win versus a potentially larger but unknown gain (or loss)
@@theagemawaythanks I was having a hard time understanding why someone wouldn’t just sell the asset a week later. In this example the potential loss is time and holding on for longer than one should especially if it was a bear market.
Love all the content you have shared with us.
How come you don't buy a strike below the call side on this strategy like you do on the wheel strategy that you show for the 2 month campaign.
This is an options selling strategy. We’re not buying calls or puts. We’re selling them.
When you own the stock, you get dividends if you qualify.
But it takes 40 years to get rich
why a trader should bet 40k to make 2k on yearly base? Isn't it better to invest it in $SPY, it goes up 10% a year and make 4k.. on top not sure if you counted your commissions. If you went long call on 40k last year on January, you will be up like 70-80% in a year. For me this strategy is not good r/r
You’re wrong btw
Because it doesn't blow up if the market dumps. How did those calls do in 22?
@@mwcinci how many years the market dump in last 20y? like 3 times ?
No guarantee of the SPY going up every year. It “averages” 10% over several years or even decades. Options allow one to “potentially “ get out of a bad trade. No guarantees there either.
That chart,, is the 30 year perma-bull working on a double top,,, nah, probably not, long live the perma-bull !!
It’s a bit confusing for me. Maybe it would be better if you indicate sell and buy next to ‘call’ and ‘put’ option. That way, we can see clearly when to sell and when to buy.
Or use different color fonts for sell and buy. Because I have to try and listen very very slowly when you said 'sell' and when you said ‘buy’. It can get a bit overwhelming for me. Nevertheless, thanks for coaching.
Being new to the Wheel Strategy, has anyone here used this successfully on a cheaper underlying? Just looking for examples. My trading account isn't at $40k+ yet (where SPY is currently). How about on a good solid stock instead of an index?
Thanks!
It's easy to say looking at history and talk. What happens you sold it for $377 and dropped to $360? You immediately lost $1700
That is the reality of trading/investing. You can lose your money. You can accept the loss, roll the trade out in time or use another mechanism to defend your position.
Hey Bella, I'm a strong believer in "inclusion", and "diversity" is also great, i also love this idea of "equity". I want to phrase this correctly, because its not a baited question. Would you consider training people who look like you or Seth? I understand that whole D.I.E. thing, but there's a lot of older people who just didn't have internet and opportunities like people nowadays... You guys are doing awesome things to help "everyday people". Thanks
I want to be remote trader
FYI: please stop with the sliding visuals. Very unsettling and does not help the audience focus on the presentation. Also, reading what is written on the screen seems redundant. We can read.
Focus more on getting us to understand how to figure out where to set our trade points.
Thanks, and I appreciate your efforts.
Make your own video's then
You don’t speak for everyone if you don’t like it go some where else or put it with and learn
This isn't like live television of yester year. How about using the rewind button and keep hitting it until you understand it?
So wheel strategy lol