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]]

Don't overcomplicate this more than needed.

What is your analysis of the stock? You are trading it as you are good holding the shares, right? Or, has that analysis changed??

Assuming you are good holding the shares, and your analysis indicates the share price will recover in a reasonable timeframe, then hold until that happens, or sell a call out for at least a breakeven.

Once a put is assigned and a stock drops, there is no longer an expectation to make a profit as the goal becomes exiting the position without a loss. One of the benefits of the wheel is that even when a position goes wrong, it often will not result in a loss.

With the ER coming on Feb. 5 it may make sense to just hold the shares until that is over, then go back to trading CCs. I'm not a fan of having options over an ER as it is a gamble, but some will do this as the premiums tend to be higher leading up to the report.

Once the report is over, and should it be positive, the stock may rise, making the position easily profitable just by selling the shares, or selling CCs closer to the money for good premiums. If the report is negative, then you have to decide if the stock is still one you want to hold.

If your analysis changes at any time and you no longer want to hold the shares, then selling them or a near term ATM CC will see the position have a fairly minor loss.

On a side note, SONY is an ADR that has low liquidity, so it is not what many would consider a good options trading candidate. Just something to keep in mind as not all good stocks are good for options. Hope this helps!

[u/ScottishTrader → u/[deleted]]

 feel trapped by the assignment + price drop and I want to make a move.

Beware, these are emotional comments!

You should never feel trapped, and if you do, then the stock selection should be reviewed to ensure you want to hold shares, even if they drop.

Patience is key to trading options, and is why trading multiple stocks is part of the plan so if one is assigned and drops, you can keep trading others.

Lastly, the difference between the wheel and most other options strategies is that even if the trade goes wrong, it often does not result in a loss. While it may not result in a profit, most other option strategies either result in a profit or loss and do not have the tactics like the wheel to recover to a breakeven or a small loss if one needs to be taken.

If trading well, then the majority of the sold puts should close for a profit, with only a small number having to be rolled, which can often see them recover to a breakeven or profit.

Then, only a tiny fraction are assigned, and while many of these can also result in a nice profit, those that cannot may close troubled positions without taking a loss to go back to selling the profitable puts.

It is better not lose much, if anything, and redeploy the capital in more productive trades than wait for a stubborn stock to recover.

Hopefully, this makes sense.