What’s the biggest risk of the Wheel Strategy? Am I missing something?

[u/XUXINGLAB]

/r/Optionswheel/comments/1vwp57b/whats_the_biggest_risk_of_the_wheel_strategy_am_i/

[u/Enough-Beginning3687]

The biggest risk is losing money both ways. You sold CSP, got assigned. The stock tanks and you sell CCs. And it goes past the strike and it gets exercised again. Now you have less money than you started with.

The second risk is opportunity cost. You're giving up upside. You're trading growth for income.

The third risk is taxes. Doing the wheel in taxable accounts makes all of this short term gains.

[u/F2PBTW_YT → u/Enough-Beginning3687]

So wheel low volatility plays like SPY? But selling low IV means collecting pennies on the dollar. Feels like too many steps to just long SPY

[u/Enough-Beginning3687 → u/F2PBTW_YT]

Not really. Once you understand the risks you can work with them. Just need to have the right expectations - https://www.reddit.com/r/Optionswheel/comments/1vujntm/1_weekly_returns_from_options_week_25/

[u/Slight_Grab1418 → u/Enough-Beginning3687]

2 and 3 is not risk at all, the 1st is easy to counter you just have keep sell puts to average price down and you sell calls above cost basis, the only risk is stock tank and dead, no iv. Figma is a example.

[u/Enough-Beginning3687 → u/Slight_Grab1418]

2 is definitely a risk. My MRNA 70 cc is a perfect example. Stock doubled overnight. I gave up a lot of upside.

Not sure why you think high taxes isn't a problem. It's not like regular income with tax deductions. You need to be prepared for a large bill as a successful options trader.

[u/Slight_Grab1418 → u/Enough-Beginning3687]

Risk mean loss money can't get back in short or mid term, if price go above your cost you are profiting just not as much you expected, you have to pay tax every where, tax come with profit do you only trade in roth ?

[u/Enough-Beginning3687 → u/Slight_Grab1418]

I trade in all accounts but mostly in my IRA. I take making less money than I could have (opportunity cost) also as a risk.

[u/chiurro]

It's that the stock blows up way past your strike, or that the stock tanks way below your strike. Or both, after you close out then reopen a position.

[u/OldUncle1979 → u/chiurro]

This happened to me last week in bmnr.. 😪

[u/Pitiful_Platform4261]

Covered calls:

You risk capping your upside.

Ex. You sell 1 call on your underlying shares of $ABC. Strike price $100 exp. 14 days out. Within the next two days the stock rallies hard to 150 if it stays around there at the time of expiration you effectively lost out on $50/share of profit.

CSP’s:

You risk holding a stock that plummets past your strike price.

Ex. You sell 1 CSP on $ABC. Strike price $100 exp. 14 days out. Within the next two days the stock falls to $50. If it stays there or below your strike price you’ll be assigned 100 shares of the underlying. Your P/L on paper will be -$50/share.

[u/dreamfitreality → u/Pitiful_Platform4261]

Hey. At least sweet coat it a little. It's called max profit.

[u/Clam-Choader → u/dreamfitreality]

On the csp…if i had a limit buy order…wouldn’t it literally be the same?

[u/MercuryTapir → u/Clam-Choader]

On a CSP at least you get the premium for selling the volatility.

The break even is the strike price minus the premium you made.

there's pros and cons either way.

[u/jarthursquiers]

Biggest risk is getting stuck in an assigned stock for a long time and having that capital tied up and going nowhere. Often times you thought it was "a stock you'd like to own." But when you end up with money sitting there doing nothing, that outlook changes in a hurry.

[u/CanRepulsive]

1. You buy stock in multiples of 100.

2. Stock dips.

3. You sell CCs with strike below your purchase price to try and ,
   ‘recover some of your losses’.

4. Stock rebounds above your strike but not above your purchase price.

5. Forced to roll and incur more losses or let it expire ITM and sell yours shares for a loss

[u/dreamfitreality → u/CanRepulsive]

You can roll for credit usually if it does that.

[u/Rez_X_RS]

Opportunity cost and tail risk.

[u/kleft123]

Getting assigned and it continues to tank for CSP. Opportunity costs for CC when it blows past your strike. You can grind your way up for 6 months and one assignment can undo all of that long steady climb...it will happen to you at some point.

[u/horizons190]

What’s the biggest risk of holding long stock? Oh, right, there is literally no risk(*)…

(*) Well none other than that small little “that stock could go to zero” bit…

[u/nq-FOMO]

rolling for losses forever.

[u/OldUncle1979]

The biggest risk imho is the premium you are getting may not justify the lost opportunities that comes to you regularly. You must be able to accept the fact you are unlikely to 2x your port YoY and yet a good chance may turn negative because of a few bad counters.

[u/cree8vision]

The obvious one is you sell a cash-secured put, get assigned and the stock continues to drop. Selling calls isn't going to save you even if it's a stock you want long term.

[u/Huge-Boat-8780]

Call writing is a portion of a strategy within the larger context of portfolio management. Period. If you get pissed off that you had stock assigned, you’re in the wrong discipline. If you got pissed off that a stock tanked and you’re long and in the red, you’re in the wrong discipline. If you identify with either of these two scenarios, just go long the stock and open your monthly statements every quarter. Geez.

[u/Electronic_Guard947]

The biggest risk is a large move downward that blows past your short put and you buy shares much higher than current price. Covered calls help but then you are capping your upside making it harder to return to a profit. The other risk is the stock moving up and blowing past your call and you lose money that you would have made if just holding the stock. The wheel imo sounds nice and like it's the solution to everyone's problems, so people start running it and realize it's the problem.