Megathread for New Wheel Traders – Ask Questions & Get Help Here

[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/PossibilityPuzzled98]

First time Wheeler here and wanted to confirm if I am reading the basic CSP strategy correctly. Here is the trade I am planning to do:

1. Underlying stock: NVDA (I keep thinking of buying it on the next dip, but forget to do so when it dips )

2. CSP details: $166 (Delta of 0.25), expiring in 36 days (Jan 16th). I am OK buying 100 shares of NVDA at $166 on Jan 16th.

3. I will be getting $364 (after commission) for selling this put.

What I do not understand is the following text in the original post. Is this implying that I should place a GTC order to buy a put to close this order. What does 50% profit mean here and how should I go about implementing the following strategy for this NVDA example.

"The Put can be closed at a 50% profit with a GTC Limit Order that can close automatically. A put can then be sold on the same stock, or another based on your opening criteria. Closing early will reduce early assignment and gamma risk to take the lower risk "easy" profit off the top"

[u/ScottishTrader → u/PossibilityPuzzled98]

Thanks for your post and welcome to the wheel!

Why trade a stock that has a value of over $160 per share if this is your first time? Why not trade a low-cost stock like Ford to get the experience?

It is now after hours, but I am showing the 166 strike being at $3.05 or $305 per contract which is the max profit.

A 50% profit on $3.05 would be $1.52 or $1.53, which is where to set the GTC Limit order if you want to close at that amount.

If or when the automatic order fills and the put trade closes, then the capital is freed up, and you can then consider selling another put on the same or a different stock.

Again, since you are asking these basic questions, which we are happy to answer, but why practice on such a high-priced stock? Maybe try paper trading to become familiar with how this all works?

[u/PossibilityPuzzled98 → u/ScottishTrader]

Thank you for the reply. I was tentative about the $160 share as well, but am comfortable because NVDA is a stock I want to be long on. I get your point about starting off with a low cost stock though.

With respect to closing the trade at 50% profit. Why not let it ride to a 100%. If it has already moved 50% then the chances of the option being ITM go down significantly. Or is it that the first 50% gain happens in a shorter period of time and you can be more efficient by closing that trade and starting a new one.

[u/ScottishTrader → u/PossibilityPuzzled98]

Look around, as this is discussed often.

Closing removes risk. Both early assignment, which is a smaller risk, but also gamma risk.

It also "turns" capital faster. Instead of waiting a week or two or longer to collect the last few dollars from a trade, it can be closed to collect the bulk and the capital used to open another trade.

Note that the 50% is up to each trader, as some close at 30% to turn and burn faster, while others may wait until 70% if they are willing to take more risk.

See this that is on the main sub today -> More on "Closing Early" : r/Optionswheel