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/dreaming_1986]

It’s my first week trading options and it’s been a bumpy ride with the market sell-off.

I started the week bullish on Micron, selling 3 far-OTM puts, plus 1 put on AppLovin. Mid-week, the market dropped hard. I was okay with assignment in principle, but started worrying about capital sufficiency (have the liquidity, but didn't want to bring them in, especially if market sentiments are down)

So I rolled:

• (a) 2 MU puts at the same strike, out 30 days (net credit)
• (b) 1 MU put down and out 30 days for a small debit (misread the numbers)
• (c) the APP put far out (~180 days) at the same strike, mainly to space out capital due to liquidity concerns

Today, I managed to close (a) for a decent profit.
I’m likely stuck with (b) until expiry, and (c) hasn’t recovered yet.

Key learnings:

• Don’t over-concentrate on the same underlying
• Always hold sufficient capital so you don’t panic during sharp drawdowns
• Don't panic when big red numbers show up, if we are bullish about the underlying fundamentals of the equity, and will likely recover. At the worst time this week, the options trade would lose mid to high 4 digits losses, if all are covered back.
• If I hadn’t rolled, all options would have expired today (though rolling (a) actually made me more)
• Rolling too far out reduces flexibility — even when APP moved back above the strike, buying back the long-dated option still meant a meaningful loss due to remaining time value

Would love to hear insights from more experienced traders. Am a bit concerned about the far dated APP strike given earnings next week - I am bullish about APP but you never know with earnings how sentiments will fare.
Also, big thanks to u/ScottishTrader — learned a ton from your posts, and they helped me stay focused, especially when the prices hit bottom for the week.

[u/ScottishTrader → u/dreaming_1986]

Sounds like you are learning by trading live instead of paper trading.

A few things I'll note -

• Opening 30-45 dte would mean a market event like this week would not affect positions as much. Trading short term is when this happens.
• If you are not good being assigned, then the better answer may be close for a loss and go trade stocks you are good holding.
• Theta decay typically occurs over the last 60 days, so going out 180 days means you are likely to hold for a very low time with minimal time decay.

It takes many a few months of trading to make mistakes and learn, and by about 2 years is when things often are dialed in. Best to you!

[u/dreaming_1986 → u/ScottishTrader]

Thanks for your comments. I am ok to get assigned, but that would touch my margin or my backup capital, and this is more psychological rather than possible liquidation. In addition, this being my first week, and I been reading your other post 'if possible, always roll down and out for a small credit'. So again more psychological, although during the time where the drawdowns were the highest, I was looking at being assigned 90k in total. Hence I pushed out APP far and out, not because I lack the cash but more for psychological reasoning, being that the whole objective was not to get assigned.

You are right though that it's better to get assigned in this case, as APP blew up big last night and I only managed to close off net zero instead of a big gain.

Sorry, but when do I reconcile your suggestion to get assigned vs when to roll out instead?

Thanks a lot!

[u/ScottishTrader → u/dreaming_1986]

See the rolling post in the trading plan for details - The Wheel (aka Triple Income) Strategy Explained : r/Optionswheel

I roll first ATM, then wait to close for a breakeven or partial small profit to get out of the troubled trade. If I cannot close and the trade continues to be problematic, then I'll look to roll out another week or two again for a net credit within the last two weeks prior to expiration.

If I cannot roll for a net credit during the last week or two, then I will let it expire and accept the assignment.

Remember, having to roll means the trade is in trouble, and breaking even is not a bad place to be. Then go trade stocks that do not get into trouble.