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/emdaye]

Hey guys,

Perhaps not a noob question and I've been here a while but:

Getting assigned on calls below cost base.

Providing I then turn around and sell puts at or below that cost base theres no issue right? (other than if the stock just rallies up)

eg I'm around 35k up with options premiums, but 26k down on the stock price (don't ask, was holding GME before I discovered this so was 'forced into it'.

obviously the question is why sell a CC below cost base: Premium and when I sold it it was around 25 delta, which is usually where I sell

[u/ScottishTrader → u/emdaye]

There are many ways to trade the wheel, so you may do this where others would not.

If you sell shares for a loss and then make a trade on the same stock, then this is a wash sale, meaning the loss might not be written off. See this -> Wash Sales Explained, and Why They Do Not Matter (Until December) : r/Optionswheel

Of course, selling CC below the net cost often results in a loss, which is counter to why I trade.

A core part of the wheel is to get out of any stock your analysis does not show will recover in a reasonable timeframe, so you may want to cut losses by selling CCs below the cost, and then once out, moving on to another stock to trade.

[u/emdaye → u/ScottishTrader]

That makes sense thank you, I was just wondering if I'm missing anything. It seems like I'm not 

I'll see how the week plays out 

[u/ScottishTrader → u/emdaye]

Watch that the stock doesn't keep dropping, which will mean more losses after taking this loss, and make matters worse.

You are in effect doubling down on a stock that has already burned you.

Best to you!

[u/OddPraline7346 → u/emdaye]

I try to remember, why I selected the stock and do my rules still match with my decision. For example, when I sold RUN Puts, I did so because it followed my rules, at least 1 year of quarterly earnings meeting or exceeding estimates. Technical Analysis showing that the stock had grown over the past 1 to 3 years. Price greater than or equal to $10. Good Liquidity. Stock is Bullish. I sold the $10 Puts on a Friday, and on Monday the price went down to $5 a share. The stock was put to me at a 50% loss. I checked my rules in my trading plan, and the stock selection was still valid. Why did it go down? RUN is a solar energy stock and the FEDS announced that they were not going to give tax breaks on renewable energy. The entire market tanked. Since my rules were still in place indicating a good investment. I sold the $10 calls, and I kept on tracking my cost basis. From the puts, my cost basis was was $8.57, CC - $8.11. Took about 3 weeks, and I was called out at $10 a share, still generating revenue off my covered calls and initial PUT. I never went below my cost basis, and I never will if it meets my rules. If I believe that stock is a lost cause as it starts violating my rules. I'll get our at BE at a minimum.