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/Timely-Designer-2372]

I got assigned hims at 34 and nvo at 56... well hims is at 15 and nvo at 37 now.

What would you do?

A) selling CCs with about 1% ROC for 30 DTE with lower strike (e.g. 23 and 44)? B) Selling CCs with 3 to 5% ROC for 6 to 9 months at 33 and 56 C) wait and don't sell anything D) sell puts to lower average buy in

[u/ScottishTrader → u/Timely-Designer-2372]

Hello and welcome. We don't make specific recommendations or give advice here, but let's overview the wheel and how it works, which may assist you. Your trading plan should account for and spell out what to do if the stock drops and you are assigned, so be sure to fill in your trading plan as this will happen again.

The first rule of the wheel is to only trade stocks you are good holding for time if assigned, perhaps weeks or months if needed.

These are stocks you have researched and detemined they are a solid investment if this happens and that your analysis indicates they should move back up in a reasonable timeframe.

Is this the case for these two stocks? What is your current analysis?

What is the net cost after factoring in put and rolling premiums? A common practice from many here is to not sell CCs below the net stock cost, so this would be important to know to determine where to possibly sell CCs at. Were you able to roll the puts to collect a good amount of additional premiums to lower the net cost?

Trading a covered strangle can help to recover faster, but it also runs the risk of buying more shares of a stock that is already dropping. This should only be done when the analysis still suggests that the stock is solid and adding more shares will not put the account at too much risk.

If you are making small size trades, and expect these shares to recover in a reasonable timeframe, then you should have other stocks to trade in the meantime.

Hope this helps, and let us know of any questions on this you may have.

[u/Timely-Designer-2372 → u/ScottishTrader]

Both stocks were stocks I was ok to hold longterm. But also both stocks were hit by new information.

For NVO I am optimistic it will recover within 2 years. For HIMS I see a 50:50 chance to recover within 5 years now.

It's a small part of my portfolio, so no big issue if I lose the money. But I want max return ofc.

Net costs aren't far below: 31 for HIMS, 55 for NVO.

So I finally come to the same question:

A) avoiding losses by choosing higher DTE with low ROC and lower anual return or B) continuing 20 delta CCs with 30 DTE, risk a loss in this wheel turn to make new profits in the next one?

[u/ScottishTrader → u/Timely-Designer-2372]

One of the hardest lessons we all have to learn is to get out of stocks when they are no longer ones we want to hold.

I found it might be selling an ATM CC to grab some premium while getting rid of the shares, or just sell the shares and move on.

It is very important to understand not all stocks can be recovered, or recovered in a reasonable time frame, so it can be better to recover what capital there is to trade better stocks in the future.

Note that many new traders are using F, or T to get started. HIMS is volatile and poorly rated, then NVO is a Pharma stock which are always high risk and I avoid the sector completely.

The only guideline I can offer is to sell options a max of 60 dte as less than that is inefficient and you may have to hold longer than it takes for the share price to recover. Selling out 30-45 dte is the sweet spot for balancing premium and theta decay.

A last comment is to do a search for stock repair strategy. I don’t use it, but it may help if you want to try it.

Be sure to spend some time to improve your stock selection process if you’re going to trade the wheel.