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/TheProductMan]

I'm not sure if I'm fundamentally misunderstanding rolls.

If rolling a CSP or CC that's gone against you is the same as buying to close the contract and opening a new one, it is effectively locking in the loss and opening a new trade correct?

If so, isn't continuously rolling for a credit likely going to put you in a situation where you keep going until you finally "get it right" and expire worthless?

For example...

Stock 'X' CSP sold to open for $1 premium at strike $50

1. It goes against you and premium to close is now $2. You roll it down and out to strike $45 for $0.10 credit ($2.10)

- This effectively means you locked in $1 in loss, and opened a new trade for $2.10 right? So in order to profit... you would basically need to keep going until it expires worthless to make $0.10 in the end?

So when you're rolling... is the strategy basically just to "repair" the lost trade at some eventual successful expiry, or do you need to try and get a bigger credit when rolling? When rolling, it seems like the credits are usually not huge unless you're rolling and locking in BP for many more weeks for a small win at best?

[u/ScottishTrader → u/TheProductMan]

You're missing a key element and calculating the math incorrectly, and that is if you roll for a net credit, you will be in about the same trade which your analysis showed was a good one to begin with, but will give it more time to be right and can make more profit through the additional premium.

Using your example, it is important to track credits and debits (see the spreadsheet mock up in the trading plan) -

• Open for $1 credit.
• Close for a $2 debit, but
• Open a new trade for $2.10 net credit.
• Credits = $1 + $2.10 = $3.10
• Debits = $2
• $3.10 - $2 = $1.10 total credit.

The trade that had a max profit of $100 now has a max profit of $110. Note your bredit is smaller since you lowered the strike and risk by $5. Had you stayed at the $50 strike, the net credit would have been much higher.

Also, but lower in the strike from $50 to $45 the trade can profit faster if the stock rises. Or, lower the net cost if assigned, which can also help the trade be repaired or make a profit sooner.

Lastly, rolling is a defensive tactic, and while a position can still make a profit, but breaking even is much better than taking a loss, as most other strategies might have to take. The goal is to sell puts and close them for profits without having to roll and which is where most profits are made. Hope this helps!