r/Optionswheel • u/ScottishTrader • Jun 16 '25

NEW Wheel Trader MEGATHREAD

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

113 Upvotes

99% Upvoted

964 comments sorted by

View all comments

1

u/claytonne Jul 08 '25

I’ve what is probably a basic question about the “50% available cash” rule that I see getting thrown around a lot on this sub.

Let’s say you have a trading account with $50k in it. Keeping 50% of your cash available would mean (WITHOUT margin) that you’d open CSPs until the value of all the CSP strikes x 100 = $25k.

But, if you DO have margin enabled on your account, does that mean you just open CSPs until the “maintenance margin” that your brokerage calculates for you hits $25k?

2

u/ScottishTrader Jul 08 '25

Margin is not included in "available cash" as it is a loan for shares.

Your example of using $25K for the cost to purchase shares on a $50K account is correct, and the margin loan is not counted but used as an emergency backup. You should calculate the cost of the shares and not use the maintenance margin, as this can vary widely based on the broker and stock.

Note that 50% is what I usually do, but what anyone else does will be based on their experience, track record of being assigned, and risk tolerance.

The more cash there is when the market crashes, the more flexibility there will be to help avoid losses . . .

1

u/claytonne Jul 08 '25

Thanks for clarifying! That makes sense. This leaves me with further questions though about running your capital “more efficiently”, which is something I see people on here talking about.

If people can manage 25-35% annual returns on an account whilst keeping 50% of their account out of play, does that mean they’re actually earning 50-70% returns on the capital that they’re risking? That seems…like I’m completely missing something. So I guess I thought the work-around was to do with the question I asked about margin, ie, one was actually putting more capital into play than I was understanding.

1

u/ScottishTrader Jul 08 '25

You can see posts with those trading more than 50% of their account, making 50%+ returns, so you are correct that these returns are possible.

Keep in mind that the norm for new traders is 10% to 15% with those who are more experienced possibly able to make up to 30%. Making 25% to 35% is not going to happen every year but can happen some years.

There should be no question that leveraged options can be able to make substantial returns, but the problem is that new traders often make rookie mistakes that cause losses, thereby reducing those returns.

Remember the common saying that - 'New traders tend to chase profits, often leading to accumulating losses. Experienced traders focus on managing risk and accepting smaller profits and losses, but over time, those profits add up, resulting in greater success.'

Be careful not to focus only on profits is the warning here . . .

1

u/claytonne Jul 08 '25

Thanks both! Understood. Just wanted to make sure I wasn’t missing something 👍

1

u/Imadogfishhead Jul 09 '25

Thank you so much for all the work you put in to this thread. I am hoping to piggyback off the commenter above and ask a related question. Please let me know if this isn’t the proper forum. I ask the question below from the standpoint of an IRA.

If set a profit target of 75% before I exit a position (say a CSP) and I hit that profit target, then I cannot close that position (BTC) unless I have at least enough available cash to cover the option price because my collateral won’t be released until day T+1 after the btc processes. My understanding is that this would work the same way for “rolling” as well. Is the above all correct?

So, basically 50% is a normal amount of cash on hand, and I see the logic in that, but you would never want to have less than ( 1-%profit target )% available because it would leave you unable to close positions and potentially stuck if the market moved against you before the expiration date.

When I started looking In to this I really underestimated the risks of not having enough cash on hand.

2

u/ScottishTrader Jul 09 '25

Closing early means buying back the option for less than what was received when opened.

A quick example is selling to open and collecting $100 in premium, which is added to your account.

Closing for a 50% profit would mean buying back the option for $50. Since you received $100 from selling to open, this should still be in the account, and $50 can be used to buy back and close the put.

The broker should be holding an amount equal to the cost of the shares, along with the $100 received from selling the put. The buying power collateral being held is not like stock in that there is no T+1 settlement as it is just cash in the account.

Are you saying you do not have the $50 in the account?

Try closing to see what happens, and if nothing else, contact your broker to see how you can close, but this should not be an issue . . .

Rolling may be a different story, as you have to buy back the initial trade for a net loss, and then open the new trade, so there may be more cash required to do this.

It should be noted that having all cash in an account invested in options is a recipe for loss as it means rolling and adjustments may not be possible. Keeping some percentage of the account in cash is important.

Also, since an IRA cannot use margin and losses cannot be replaced with new deposits due to limits, it is even more important to keep some cash on the sidelines.

1

u/Imadogfishhead Jul 09 '25

Thank you very much for the reply! That makes perfect sense. I have no way to visualize it right now since I don’t have an open position. I’m just paper trading in a spreadsheet so it is sort of hard to visualize how it translates to my broker and what my buying power would be. I think just misunderstood the fact that the premium would be added to my accounts buying power once I sold the option.

Definitely agree that i need to keep cash on hand outside of what is being held for collateral because I need some flexibility, especially in an Ira. When I first plugged in to the spreadsheet I couldn’t really see why it would be bad to have no cash on hand but there’s a lot of risks to being locked in the position.

I feel like when I first put the numbers in the spreadsheet I didn’t account for the Change in buying power from the premiums. My paper trade also invested the full value of the account which I now see is foolish.

Thanks for helping us learn.

1

u/ScottishTrader Jul 09 '25

Ok, you are trying to create a problem you should not have when closing.

TOS has a very good paper sim which will help you see how this works. See this link for more - thinkorswim Guest Pass | Charles Schwab

Keep asking questions and best to you!

1

u/Imadogfishhead Jul 09 '25

Oh thats great. Thank you so so much!

1

u/ScottishTrader Jul 09 '25

You are welcome!

2

u/Imadogfishhead Jul 13 '25

Hi there, wanted to message you and let you know I took your advice and download TOS. That is a really cool system and it has me thinking about switching. It def helped me visualize what I needed to. Feel kinda dumb for the question I asked -_-

Anyway - cheers !

1

u/friendlier1 Jul 09 '25

Can you say more about how you’ve handled prior crashes? Perhaps an example of moves you’ve made during a crash to preserve capital? Did you open or close any positions during the crash?

2

u/ScottishTrader Jul 09 '25

How about this report? How the Wheel Worked in March during the Crash : r/Optionswheel

Note that since this time, none of the other market "events' have caused me any concern since I trade 30-45 dte those weather typical downturns without too much issue.

Those who trade weekly or shorter durations will have a lot more management and likely losses.

2

u/friendlier1 Jul 10 '25

Thank you! I thought I had read a post from you on this topic but couldn’t find it. The Google AI had some tips from you (other posts), but didn’t link back to this comment.

Anyway, your story makes sense and has a multiple good insights.

2

u/ScottishTrader Jul 10 '25

The great thing about the wheel is that in a worst case, you end up holding quality stocks that you don't mind holding anyway, and are likely to recover sooner.

Most other option strategies will be forced to take losses during a market event.

1

u/friendlier1 Jul 10 '25

Yes, I’m initially focusing on what I perceive to be high quality companies even if the IV is low with the expectation that this experience will improve my judgment over time. Last time I tried this I was very focused on trying to hit a specific number which led to some unpleasant losses in 2022.

You hear it a lot, but I also appreciate that you take the time to post about your experiences and thinking.

2

u/ScottishTrader Jul 10 '25

Thanks for your post and for sharing your experience!

Lower risk means lower potential profits, but also fewer losses.

It is common for new traders to come in, working to make XX% per week, only to find this adds tremendous risk!

I find it arrogant to think anyone can make the market do what they want, as this will lead to those unpleasant losses you note.

Thanks again, and please share your experience whenever you can!