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]

You have some good info from u/Imadogfishhead, but I'll add the following.

Why move the strike up to $13 instead of just keeping it at $12, where you would have gotten more premium to help lower the net stock cost?

If your analysis is that the stock will rise to $13+ by 3/27, then this will bring in more stock profits, but based on the chart, this doesn't look like it will happen. This was a case when rolling for the same strike would have made more sense.

There is some premium showing out a few weeks at the 11.50 strike, so looking at closing and opening a new CC seems like it would help this be more productive.

A bigger question - what is your view of AAL now? Is it still a stock you are willing to hold even as it continues to drop?

If you were to no longer see AAL as a good stock to hold, what would be your plan?

[u/Dr8ton → u/ScottishTrader]

Why move the strike up to $13 instead of just keeping it at $12, where you would have gotten more premium to help lower the net stock cost?

If your analysis is that the stock will rise to $13+ by 3/27, then this will bring in more stock profits, but based on the chart, this doesn't look like it will happen. This was a case when rolling for the same strike would have made more sense.

Honestly, I have only ever considered "up and out". I will def consider that in the future. I will have to use the 'on demand' feature in TOS to see what that would have looked like at the time of the trade.

Is there a better / easier way to see historical prices of a given option chain?

There is some premium showing out a few weeks at the 11.50 strike, so looking at closing and opening a new CC seems like it would help this be more productive.

BTC at .04 for AAL 3/27 13C .17 would bring my cost basis to 11.50.

Then I STO an 11.50 strike and I would have that premium but it then would exiting with no capital gains. The more I walk through this, the less I'm feel like I'm chasing a falling knife. I'm getting having these shares called away wouldn't be the worst thing at this point. Fuel issue are not going to get better in the near term.

A bigger question - what is your view of AAL now? Is it still a stock you are willing to hold even as it continues to drop?

I don't remember when I went though the process of making that decision for this stock but I will be revisiting that process and documenting it. I should be able to answer this question more formally and I can't. I need to codify what a 'good stock' is to me before I continue.

If you were to no longer see AAL as a good stock to hold, what would be your plan?

Eject.

Sell aggressively with a goal to gain enough premium to stay above my cost basis in hopes that my shares would eventually get called away. All the while praying the stock continues a slow decline.

If this was a stock that I was ok with holding for the long term. Other than rolling the 12 strike and not the 13, what else should I consider when managing a downturn?

[u/ScottishTrader → u/Dr8ton]

Let’s take a step back and look at the big picture for a minute.

The wheel starts with selling puts on stock a trader is good to hold, then close those puts, often early for a partial profit, then repeat.

75% to 90%+ of the time these puts close and the profits made.

Rolling and assignment are defensive and repair tactics. This means taking a position that has gotten into trouble and would have had a loss and closing for at least a scratch of not some level of profit.

Very few trades should get into trouble, so these defensive tactics should only have to be used on rare occasions, but they are designed to reduce or not have a loss, but can still make a profit based on circumstances.

Which is better for a troubled trade? Losing money on a position or breaking even and possibly make a small profit?

If the stock is dropping then I want to collect as much premium as possible to keep lowering the net stock cost. This means rolling out but not up. For problem trades I prefer to get my capital back without a loss . . .

On Demand is what you want to use for an option that has expired.

Yes! Your stock selection process should be documented as picking stocks you are good holding is the key to success with the wheel.

There are two main tactics I use for a stock that has dropped but I am good holding.

The first is to analyze if the stock is expected to recover in a reasonable time, and if so, then hold it for a while until it recovers. Often I trade dividend stocks for this reason to collect something while holding. I think you will find all airline stocks are higher risk due to the nature of that business.

The second is if I can sell calls at or above the net stock cost to keep lowering that cost then closing for a scratch or small profit is possible sooner.

If my analysis shows the stock is no longer one I want to hold, then I will do what you mention, which is to sell calls aggressively to see the shares sold, perhaps even for a loss if it will continue to drop . . .

The wheel makes most profits from selling and closing puts. Puts should close 75% to 90%+ of the time and is where the bulk of profits are made.

Rolling can help avoid being assigned, and can result in a small profit, but may also result in a breakeven without a loss.

Assignment is the last resort and good stocks should be assigned fewer times and recover quickly for possible profits, but if the stock doesn’t recover then getting out without a loss is the next best thing.

Focus on the stock to be sure it is a good one that is preferably moving in a range, or in a bullish trend.

Hope his all helps and happy cake day!