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Started By
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Wheeling your way through the RED zone.
Posted on 2/23/22 at 2:11 pm
Posted on 2/23/22 at 2:11 pm
Have any of you thought about selling calls and puts? I'm not breaking some new information, but some times people forget the wheels on the bus do go round n round.
Let's take NIO for an example. Now I have a very small exposure to this company and have always worked to play with the house's money. Meaning, I want my initial investment back in cash yet own the shares initially purchased.
At the time of this post, the market is down about 330. NIO is at $20.62. I have 2 options for me to trade this:
- Purchase 100 shares and sell the 21 strike ending Friday for $50. The goal for me is to make the $50 plus the sell of the stock @$21.
I will then immediately sell the closest put below the current price. Right now that would be the 20.5 strike for $62. I know that I could be forced to purchase that at $20.5.... but who cares. I made the money up and now buying back lower. If it does not drop to below that strike price... WHO CARES.. I made money on the PUT and will sell the next lower one.
SECOND option:
- Start with selling a put close to the money. I am willing to OWN it so I'm ok with that. It's at $62.
- I make the premium from the put and buy the stock if I am required to.
- Now that I made that Premium and own the stock, I will sell the closest call that is available. Now you are at #1.
Like I said, this is nothing new, but sometimes people forget it's an option. I'm sure people here will chime in with other points to be added.
Let's take NIO for an example. Now I have a very small exposure to this company and have always worked to play with the house's money. Meaning, I want my initial investment back in cash yet own the shares initially purchased.
At the time of this post, the market is down about 330. NIO is at $20.62. I have 2 options for me to trade this:
- Purchase 100 shares and sell the 21 strike ending Friday for $50. The goal for me is to make the $50 plus the sell of the stock @$21.
I will then immediately sell the closest put below the current price. Right now that would be the 20.5 strike for $62. I know that I could be forced to purchase that at $20.5.... but who cares. I made the money up and now buying back lower. If it does not drop to below that strike price... WHO CARES.. I made money on the PUT and will sell the next lower one.
SECOND option:
- Start with selling a put close to the money. I am willing to OWN it so I'm ok with that. It's at $62.
- I make the premium from the put and buy the stock if I am required to.
- Now that I made that Premium and own the stock, I will sell the closest call that is available. Now you are at #1.
Like I said, this is nothing new, but sometimes people forget it's an option. I'm sure people here will chime in with other points to be added.
5
Posted on 2/23/22 at 2:16 pm to Jjdoc
SQQQ, SPXS, and UVXY offer simple options to hedge in situations where the market is tanking and/or during extreme volatility
This post was edited on 2/23/22 at 2:17 pm
Posted on 2/23/22 at 6:27 pm to Jjdoc
Am I missing something here or would you end up with 200 shares of NIO if it was put to you in option 1?
Posted on 3/2/22 at 10:44 pm to slackster
quote:
slackster
It took me 20 pages of looking through posts to find this. Sorry I missed it.
quote:
Am I missing something here or would you end up with 200 shares of NIO if it was put to you in option 1?
No, 100 shares. If I sell a put, and the price drops below the strike sold, I will be forced to purchase.
So I would have purchased the stock at $20.62. Sold a call at the 21 strike ending Friday for $50.
Total Profit= $50 plus the profit from the sell of the stock at $21. That's $2100- $2062= $38. Grand Total of this= $88.
At that point, I own zero shares. I sell the put at 20.5 strike for $62. It drops and I have to buy. I made $62 and purchased back the stock at a lower price. I then sell a call.
Posted on 3/2/22 at 11:47 pm to Jjdoc
I think wheeling into stocks with cash secured puts is a very under used strategy. Many use buy limit orders but why not use a cash secured put instead? Say you want to buy 100 shares of stock A for $100 when its trading for 102. Instead of setting a buy limit order for $100 you sell cash secured puts for $100 and pocket premium if it does or does not drop to $100.
Posted on 3/2/22 at 11:59 pm to audioaxes1
quote:
Instead of setting a buy limit order for $100 you sell cash secured puts for $100 and pocket premium if it does or does not drop to $100.
YEP!
Posted on 3/3/22 at 6:47 am to Jjdoc
The way it was worded, I thought you were buying it in the open market first, then selling a call at $21 and a put at $20.5 or whatever, simultaneously. Apparently you’re buying it in the open market and selling a call, then selling a put only after the shares are called.
Posted on 3/3/22 at 1:26 pm to Jjdoc
I agree. The wheel strategy is one of the basic option trading strategies that I’ve used for years. I’ve also had jade lizards and short strangles turn into the wheel when the short put leg gets breached.
One just has to take risk into account and be comfortable with the short put strike. Having to take on long stock dramatically affects your available capital in a trading account. In a retirement account, not in the same way, because the put has to be cash secured anyway. But I do like the strategy.
One just has to take risk into account and be comfortable with the short put strike. Having to take on long stock dramatically affects your available capital in a trading account. In a retirement account, not in the same way, because the put has to be cash secured anyway. But I do like the strategy.
This post was edited on 3/3/22 at 1:28 pm
Posted on 3/3/22 at 3:17 pm to Jjdoc
I was looking at tax treatment of covered calls and it sounds pretty involved. Does your broker make it easy?
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