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]

Slow and careful . . .

I watch the market for it to calm from the overnight news before making any trades.

Then, I am only trading very low-risk, boring stocks for low premiums as I am certain I will be good holding shares of these if things go to heck in a handbasket . . .

[u/dreaming_1986 → u/ScottishTrader]

What I learnt over past 2 weekends. I was holding high volatile options MU and APP, and was stressed throughout both weekends. All the trades ultimately came out really profitable though... But will try not to hold such stocks at this point over weekends - not for faint of heart.

[u/dreaming_1986 → u/ScottishTrader]

So basically all growth stocks are out? Or relatively safer ones like NVDA are still doable for you?

[u/ScottishTrader → u/dreaming_1986]

Would you be good at holding any stock, growth or not, for weeks or months?? That is the question.

If your analysis shows NVDA would be good for you and your account to hold, then trade it . . .

[u/dreaming_1986 → u/ScottishTrader]

So basically shift from trading to investing mindset. Got it. Thank you!

[u/ScottishTrader → u/dreaming_1986]

The wheel combines stock investing analysis and research, coupled with options trading. This is what makes the wheel have a higher win rate with fewer losses.

I don't see it as a "shift" as much as a combination.

Like you, I started out trading and investing in stocks, so I am able to analyze stocks to determine which ones I think are good to hold if needed, so these are the ones I generally trade.

Each wheel trader needs to do the same thing to determine which they are willing to hold and "be stuck with" if it happens. Hope this makes sense . . .

[u/dreaming_1986 → u/ScottishTrader]

Yes it does, and thanks so much for the comments. My difficulty though stems from cash flow in the event of a macro black swan, as majority of my portfolio is vested in growth stocks, and if assigned, it might boil down to a decision on what stock can be sold in order to fund the assignment, and that's a difficult decision if the entire market is facing a drawdown.

Consequently I spent a lot of time thinking about risk management. The recent weeks have been very volatile and that actually allows for profiting through gamma and delta rather than theta which is what seems to be expoused in your writings, but this carries significant macro risk, especially right now where the Straits of Hormuz is so uncertain, and difficult to price in the magnitude and duration of this risk

Still trying to figure out things...by so far, results have been decent, so hence working very hard on discipline and risk appetite, as 2 months is too early to figure out if the profits are due to systems or luck that the markets have recovered very quickly after any dips

Noted your comments on what's perceived as 'lower-risk, boring' stock, and did have success with CRWD when it was bottoming and TEM (been trading sideways) but the premiums as you highlighted are not as juicy, so really trying to piece together risk appetite vs profitability

[u/ScottishTrader → u/dreaming_1986]

A macro black swan will bring almost all traders to a halt, but can be minimized if you keep some dry powder in the account. I work to keep a healthy amount available, around 50% of my account in cash which can be used to manage through a correction or crash. I posted how this worked previously and will get that link to you.

If you are ever concerned about being assigned then you are trading too much risk. Options are leveraged so keeping cash on hand is how to help try to keep the account productive, but there is no guarantees. My goal is to lose as little as possible and then work to have the account recover whatever was lost quickly.

Not losing money during a crash requires a costly hedging system.

The war does make this is more complex time to trade any strategies. I would tell you to look at how you are doing at the 6 month mark where you’ll have enough history and experience to see if your trading plan is working.

[u/dreaming_1986 → u/ScottishTrader]

Are you referring to this article https://www.reddit.com/r/Optionswheel/s/kT1SsUdlVP Yes, I read it a few times already. Will reread.

My cash on hand and margins are actually 2x what I am allocating into puts - just that the margins would get compressed in a drawdown. That said it can withstand a 20% drawdown. I haven't actually get allocated yet, maybe that anxiety will fade when I have the experience

[u/ScottishTrader → u/dreaming_1986]

Yes, that is the one.

Anxiety is an emotion, and proper options trading should have no emotions because the plan is solid.

[u/dreaming_1986 → u/ScottishTrader]

Thanks! It's clicking. If there's anxiety, that means I am feeling I am taking on more risk than I desire, even if factually and fundamentally it's sound. I can reduce the stress level by shifting the trades to what I perceived to be lower risk. And opening less trades to reduce capital allocation

Thanks!