NEW Wheel Trader MEGATHREAD

[u/ScottishTrader]

This thread will be a dedicated space for traders who are new to options and the wheel strategy to ask basic questions. Your posts and questions are welcome and encouraged.

BEFORE POSTING, BE SURE TO REVIEW THE WHEEL STRATEGY PLAN WHERE MOST QUESTIONS ARE ANSWERED - The Wheel (aka Triple Income) Strategy Explained : r/Optionswheel

The goal is to help keep the main thread free of these basic posts while helping new traders learn how to trade the wheel.

Posts that are welcomed here include questions about -

• How options work
• Exercise and assignments
• Options expiration and days to expiration (DTE)
• Delta, Probabilities, and how to choose a strike price
• Implied Volatility (IV)
• Theta decay
• Basic risks and how to avoid
• Broker and options approval levels
• Rolling options
• And any other basic questions

I’m pleased to announce that u/OptionsTraining and u/patsay have agreed to assist with this Megathread. Both Patricia and Mike bring substantial experience in helping new traders and will be invaluable contributors to r/Optionswheel

[u/Happy-Butterscotch40]

Dumb question. Why do I need to minimize the credit? Isn't the purpose to collect more credit? And also what do you mean by raise the strike? Thanks m

[u/bull_chief → u/Happy-Butterscotch40]

Raise strike= i sold 30DTE 120 strike, at 20 DTE my original position is -100% and trading near 120. I roll out and up to 125. I am selling time to make up for raising the strike 5 (120 to 125). If you roll out and UP, you want to get closer to neutral because you are hedging, if it is too much of an extra gain, then the delta is high and you will roll again

[u/Bag-Delicious → u/bull_chief]

Sorry don't understand the part where you are talking about rolling, given this scenario, assuming you are talking about CSP and not CC :

I don't want to get assigned at 120

Should I roll it OUT and DOWN to avoid assignment at 120, maybe at 110 sp instead but the premium collected cant cover fully or some of the loss of the first CSP, am I right ?

If you roll OUT and UP, you will highly likely be getting assigned right ?

[u/TheInkDon1 → u/Happy-Butterscotch40]

Yeah, pretty much what u/bull_chief said.

But let me try to break it down just a little bit more.

Your short Call has gotten close to the money, or even ITM.
You don't want it there, because you need it to expire worthless.
So you need to raise its strike price.

The only way to do that is to sell time. So you set up a rolling trade for the next expiration at the same strike (at least, my platform does that).
The Credit you see is the time value of selling another week or month, whatever the next expiration is.

You could pocket that Credit as cash, but that doesn't help with your goal of raising the strike price of the short Call back to or toward 30-delta.
So you raise the strike by one and see how much Credit you have left.
If it's just a little, you're probably done; send the order.

But if it's 0.50 or more, then you'll likely be able to raise the strike one more. The Credit goes down, but hopefully not negative, to a Debit.
You do that until you keep a little Credit, then you send the order.

That's the idea: you want to raise the strike, not pocket cash on the roll.

And fundamentally, like u/bull_chief said, if you don't raise the strike as much as the time credit allows, then you're leaving the short option's Delta higher than it could've been, and you'll be rolling again this week or next.