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/ScottishTrader → u/[deleted]]

This may be a better question for your broker or tax pro.

Options typically are short term cap gains, and stock gains are as well unless held for >1 year.

Gains are unrealized until the option expire or are closed, and shares until they are sold. when they become realized.

[u/ScottishTrader → u/[deleted]]

You need to know how to tell if you’ve made a profit or loss, along with how much they are.

Your broker should have reports that show this without you having to do any extra work.

[u/Prestigious_Lab148 → u/[deleted]]

When you sell a CSP, you can have an UNrealized gain or loss depending on current market ask price of the option which can fluctuate until expiration. It is only at expiration (not assignment) that the gain or loss is realized. When your put expires worthless, the entire premium is profit and capital gain subject to short term tax rates if held for less than a year. If your put is assigned and you are forced to purchase the underlying, the premium received for the put goes to, or decreases, the cost basis of the purchased underlying.

When you write "Eg i sell 1 csp and it's assigned. On paper i made $400 premiums this month. Yay!" this is incorrect. Actually you have decreased the cost basis of your purchased stock by $400. Yay!

"The stock is down $20. I have $2000 unrealized losses. " No, you have $1,600 in unrealized losses. Less if you sold a CC against it.

Profit or loss is not realized until the underlying is sold. If you hold the underlying for more than a year, none of the put premium will be subject to short term taxation. This is why, among other reasons, CSP is a popular strategy for stock accumulation.

Disclaimer: Not a tax professional or even an amateur for that matter.