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Thewheelstrategy

Sell In May and Go Away?You might have heard the saying “Sell in May and go away.” It is an old investing adage that has been around for decades, but does it actually work? In this blog post, we are going to find out what’s best to do. We will discuss: 1. What is the meaning behind “Sell in May and go away?” 2. Does sell in May and go away work? 3. Should you sell in May and go away? 4. Two reasons not to sell in May and what to do instead. Let’s get started: 1. What Is The Meaning Behind “Sell In May And Go Away?” The saying “Sell in May and go away” has been around for a long time. It was first recorded in 1937 by John Hill via The Financial Times of London. The original saying was “Sell in May and come on back on St. Leger’s Day.” This phrase refers to a custom of aristocrats, merchants, and bankers who would leave the city of London and escape to the country during the hot summer months. St. Leger’s Day refers to the St. Leger’s Stakes, a thoroughbred horse race held in mid-September and the last leg of the British Triple Crown. And it seems that American traders have adopted the saying. Americans are more likely to spend more time on vacation between Memorial Day and Labor Day. 2. Does “Sell in May And Go Away” Work? And indeed, for over 50 years, the stock market performance supported the theory behind the strategy. From 1950 to around 2013, the DOW has had an average return of only 0.3% during the six-month period from May to October period. In comparison, the Dow had an average gain of 7.5% during the November to April period. So it seems that “Sell in May and Go away” is a strategy that may have worked for many years. But In recent times, it seems like the strategy has fallen out of favor. Technical analysts at Merrill Lynch looked at historical data and found THIS out: Looking at 3-month seasonal data going back to 1928, the June-August period typically is the second-best of the year, with gains 63% of the time, and an average return of 2.97%! 3. Should You Sell In May And Go Away? With all this conflicting data, does it make sense to sell in May and go away? Is this a good investment strategy? You know me — I always say “Trade What You See And Not What You Think!” Always look at the market data! As an example, last year, between May 4th and August 31st, 2020, the Nasdaq rose 28% (refer to chart). If you would have sold in May and "gone away," you would have missed out on these gains. 4. Two Reasons Not To Sell In May And What To Do Instead Maybe it makes sense to sell in May and go away when you’re an investor. MAYBE... But as a short-term trader like me, May is a GREAT month to trade, and here’s why: I like to trade The Wheel Strategy . With this trading strategy, you are selling option premiums. And there are 2 factors that influence options premiums: - Volatility When volatility is high, option premiums are higher. The Volatility Index VIX for the past few month, has been pretty low in March and April. But now, in May 2021, it's spiking up again. This means that options premiums are higher, which is perfect for a seller like me: I can get more premium! - Down Days Step 1 of The Wheel Strategy is selling puts, and you get more premium for puts on “Down Days” for such strategies. According to the NASDAQ , thus far, in May 2021, we had 7 “down days” and only 4 “up days." On “down days," there are many more trading opportunities. Last week, when the Dow Jones Industrial Average had its worst week since February, I made $3,722 in profits. Here Are Some Of My Trades In May: Let’s take a look at these trades in more detail: - Trade #1: Snapchat SNAP Snapchat recently had some rough weeks. In less than 2 months, it traded from a high of 72.50 to around $50 where it found some support. Most retail investors would stay away from a stock like this but I saw an opportunity to “buy it at a discount” : I sold Puts with a strike price of 47 and an expiration of 4 days. If SNAP closed below $47 on May 14 (the expiration date), I would have gotten assigned and bought SNAP for $47. I would consider that a bargain. If SNAP closed above $47, I would have just kept the premium that I received for selling calls. In this case, that’s $525. SNAP did close above $47 on May 14, and I collected $525 for 4 days of exposure in the stock market. - Trade #2: Square SQ Square looked very similar: Mid-February, the stock made a high of $280, but then it retreated to $200. Most market participants would not trade a stock like this, but looking back over a six-month period, I saw some good support around the $200 — $203 level. I sold 5 Puts with a strike price of 202.50 and an expiration date of May 14th. I received $100 in premium for each put, so I collected $500 in premium. On May 14, SQ closed above $202.50, and I made $500 in only 4 days. That’s a very nice return. - Other Trades I Took I sold 119 Puts on Apple , sold 212.50 Puts on Boeing , And I sold 39.50 Puts on Dave & Busters . All of these stocks have lost in value over the past few months. Investors who follow a ‘buy-and-hold approach” would lose money in this scenario, but as an active investor, I can apply trading strategies that make money even if the stock is going sideways or even moving lower. Summary “Sell in May and go away” is an old Wall Street adage that might be useful for buy-and-hold investors. But active investors like me are always on the lookout for trading opportunities. And with the right trading strategy, the increased volatility combined with markets that are moving lower is a dream come true. You need to have the right trading strategy. I personally like to use the PowerX Strategy for markets that are trending, and I trade The Wheel Strategy in choppy market conditions as we experience right now. With such a strategy, I am able to make money even if the stock is going sideways or lower. I for one will NOT sell in May and go away!
TVC:NDQEducation
by rockwelltrading
2
Start receiving a discount to purchase the stock you like. Instead of buying 100 shares with 2500 you can get 100 shares potentially cheaper. If you sold a put on the $25 that would have 140 days until it expires (jul 16 2021) you would get paid $580 dollars (5.80 x 100 shares) to have the shares "PUT" to you for selling the put. If it never gets to $25 in the next 141 days it will expire worthless and you keep the $580. (actually you keep the $580 no matter what happens) So doing the math: You put up $2500 to secure your put you then sell a put and receive $580 immediately $2500 $ 580 $ 1920 is the net you paid to control 100 shares vs. just shelling out $2500 flat out and buying. Basically $2500 worth of stock at a 24% discount....... Once you control 100 shares you can then start selling CALLS at higher strike price i.e. $40,$50 call strikes) that expire 45days to 6 mos out. Keep collecting premiums until you are Called out at your strike and then repeat the whole process again.....either with the same stock if its in your price range or another .... CCIV When it comes to the chart notice the MACD at the bottom and the two red candles this is a clea r trend reversal indication along with the RSI being in a perfect oversold position. the two dotted lines on the RSI give you indication on whether you should consider selling or buying ....since it in a low signal of course this is a good signal. Do your own due diligence this is not a trade recommendation more so a way you can see price action and what strategies you can use to profit in the market regardless of direction.
CEducation
by rahimdavis
Assigned With A Wheel Trade & The Market TanksI’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. In this article, I want to talk about what to do when you get assigned with a Wheel trade. Previously, I have shown you the Wheel strategy. It’s a strategy that I’ve been trading for several months and I haven’t had a single losing trade yet, knock on wood. So I received a lot of comments on my videos asking, “Yeah. That’s all good. But what do you do when you get assigned with a Wheel trade and the market crashes?” And that’s exactly what we are going to talk about today. What To Do When You Get Assigned With A Wheel Trade I want to show you how to handle getting assigned when the market crashes by using a real trade as an example where this happened to me, and I couldn’t have timed it more perfectly because a little over a month ago, on October 28th, I was recently in such a trade. The market was down more than 3% and it was a bloodbath. Luckily, this scenario provides me with an opportunity to use it as a template to show you what to do when this happens. The TQQQ trade I was in at the time works as a perfect example, so let me just show you how things panned out. So with this TQQQ trade, had an open P&L of -$2,667. So what does this mean? Does it mean that we do have a big loss here? No. This is only an unrealized loss, and this is how I handled it. I simply followed the 5 steps of The Wheel strategy, and the 5 steps are as follows: Pick a stock that’s going sideways or slightly moving up. Sell a Put Option , i.e. you have to buy the stock at the strike price. Collect Premium and buy the Put back when we see 90% of the profits. If we get assigned, i.e. have to buy the stock, we will sell Covered Calls against these shares to try and sell the shares at the strike price. Collect premium and buy the Call back when we see 90% of the profits. Selling Puts The trade initially started on September 3rd, so let’s backtrack a little bit to really dissect it step by step. TQQQ met all my criteria, and on September 3rd is when I first trading this. September 3th, when I started trading this, I sold 150 put for $0.66, which is $66 because I traded one contract, and one contract represents 100 shares. The next day I got assigned. I got assigned because when you’re selling puts it means that if the stock goes below the strike price at expiration, 150 in this case, I would get assigned. This is exactly what happened a day later when the option expired. So I made $66 by collecting premium, even though I got assigned 100 shares at $150/share, but here’s the deal. Since I sold the put for $0.66 this means that my cost basis, since I keep that premium regardless of whether I am assigned or not, gets lower. So this means that the $150 a share I paid minus the $0.66 I collected per share, brings my cost basis down to $149.34. Now doesn’t sound a lot, but it basically means that the stock now does not have to go above $150 anymore. As soon as TQQQ goes up to $149.34 I’m breaking even. Now if it goes above this, I’m making money. Simple right? Selling Covered Calls Now that we have been assigned, this is where we start selling Covered Calls. When you sell Covered Calls against these shares, the goal is to try and sell them at that strike price of that Call, while collecting more premium. Here’s the trade that I did. I sold a 155 Call for $2.10 on the 10th after realizing 90% of the profits, I bought it back for $0.37 the next day. So $2.10 minus $0.37 means I made $173. And now my cost basis gets reduced by another $1.73. Well, now our cost basis is going lower. Our cost basis of $149.34 drops by $1.73, so our new cost basis is now $147.61. This means that if the stock goes back to $147.61 we break even, and if it goes above we are making money. Easy right? Next, I sold the September 80 Call, the September 18 150 Call, for $0.45, then bought it back for $0.05. So this means at this point we made another $40, bringing our cost basis down by another $0.40 to $147.21. The stock kept going against us. It was going down and this is what many of you are concerned about. “What do I do if the stock keeps going down?” Well, you keep selling premium, and by doing so, you’re lowering the cost basis. Well, what I did next was really cool. Selling More Puts? So next, I sold actually two puts for $110 and $118. So that averages out to $114. Then I bought them back at $0.06. This means $114 minus $0.06. So we made another $108 here. Now I’ll explain in a moment why I sold a put here even though right now since we own stocks, and we should be selling calls. There’s a very specific reason for it, and I’ll explain it to you. Looking back at our trade, we are lowering our cost basis to $146.13. Next, after we sold the puts and they expired worthless I actually sold another 100 put for $2.40 and bought it back for $24. So we made another $216 here. Bringing our cost basis down again from $146.13 minus $2.16 to now $143.97. When To Sell Puts INSTEAD Of Calls So if you are supposed to sell Covered Calls during this stage of The Wheel Strategy, why did I sell those Puts? I already owned 100 shares of TQQQ that were assigned to me, so why risk getting assigned more? Well, I sold these Puts, instead of Calls for a specific reason. At this stage of The Wheel Strategy is where you normally would sell Calls, however, if you are on this part of this strategy, and the market is tanking, you have to make an adjustment to this strategy if the price keeps dropping, to help keep your cost basis as low as possible. These were 100 Puts, meaning if the price would have dropped below $100 at expiration for either of them, and I would have been assigned the shares. If that were to happen, I would now own 100 shares at $100 each, on top of the 100 shares I already own at $150 each. So now I own 200 shares, I paid a total of $250 for, bringing the average price per share to $125. Getting assigned these shares would have lowered my cost basis tremendously. If you subtract the total Premium I received on all of these trades, which was $12.05 a share ($1,205 overall) from the average price per share, which in this case is now $125, this comes to a cost basis of $112.95. This is what the cost basis would have been IF I was assigned these additional 100 shares at $100 each. I wasn’t assigned these shares, however, and my final cost basis was $137.95. Do you see why getting assigned is a good thing? People are afraid of getting assigned, but as long as you have adequate buying power, and are following my methods for picking good stocks, assignment should be looked at as a good thing. Selling Premium You see, this is what the Wheel does. You can sell premium while you own the stocks. So I then sold a $150 call for $1.57, bought it back at 15. So this means that I made another $142 bringing down my cost basis again to $142.55. Now, I don’t want to bore you and make this article too long here, but long story short, as you can see, I sold a few more of the calls and I bought them back. So overall, by just selling premium, even though I still owned the stock, I was continuing to lower my cost basis. At this point, the stock was down $2,770. However, by doing this, by selling more calls and puts here, I was able to make $1,748 in premium. So this means I made $17.48 per share on these 100 shares. So if you take the $150 minus $17.48 right now, right now my cost basis to break even on this trade is $132.52. So as soon as TQQQ goes back to $132. Now, what happens if TQQQ keeps going down? I will keep doing what I’ve been doing, following The Wheel Strategy. I’ll keep collecting premium until at some point, I can sell these shares for a profit. Recap So now you know what to do when you get assigned with a Wheel trade, and hopefully, it becomes less scary for you. I look forward to getting assigned with a Wheel trade because that allows me to sell calls and make even more money. If the stock keeps going down, I’ll just keep selling, and I will continue to lower my break even more and more. So, right now, TQQQ does no longer have to go all the way up to 150. It only needs to go up to $132.52. I just wanted to address this process because I know that many people who are trading this strategy are concerned saying, "Oh my gosh, what if I get assigned with a Wheel trade?” It’s a good thing. It’s a good thing and now you know why.
NASDAQ:TQQQEducation
by rockwelltrading
1
How To Place A Wheel TradeI’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. All right, so how exactly do you place a trade for The Wheel? Well if you have been following me for a while, then you know that I love trading two strategies. The first strategy I trade with is The PowerX strategy and it’s my bread and butter strategy. The second strategy I love trading is The Wheel strategy and this strategy has a very high winning percentage. In fact, I’ve been trading it publicly live on my YouTube channel over the past few months, and thus far, knock on wood, I have a 100% winning percentage. Having a trading strategy is key, but how do you actually place a trade? In this article, I will show what steps you need to take, from what type of account you need, to how exactly to place the trade. I’ll show you these steps using two popular brokers, first on tastyworks, and then on Interactive Brokers because I know that many international traders use this platform. Getting The Right Trading Permissions Firstly, you can trade The Wheel in any account you want, even in a retirement account. You just need to make sure you have the right options for trading permissions. When it comes to options trading there are four levels. On any account opening form they ask you, as any broker would, “What type of activity do you plan to conduct in your options account?” It doesn’t matter whether it is a cash account, a margin account, or a retirement account, all you need for trading The Wheel strategy is the lowest permission possible which is Tier 1. With Tier 1, you can write and sell covered calls, as well as writing and selling cash-secured puts. This is exactly what we are doing with The Wheel strategy. So this is step number one because if you don’t have these permissions, there’s not a whole lot that you can do. Contact your broker and make sure that you have Tier 1 options permissions, which again, are writing covered calls and cash-secured puts. If you have a higher Tier, like Tier 2 or 3, that’s okay, because Tier 1 is included in the higher Tiers. The 4 Things You Need To Know Before placing a trade, there are the first four things that you need to know: What type of option are you trading? Are you trading a call or a put? You need to know what is the expiration of the option. What is the strike price? What’s the minimum premium that we want to get in this trade when trading The Wheel strategy? For those who may not be aware, when I take a trade I send out an alert notifying those who opt into our Power Income Alerts feature. I recently sent an alert out for a trade with WYNN that I recently took. According to this alert, the idea is we believed that WYNN would stay above 70 by October 30th, but if it is less than $70, we would be assigned shares, then sell calls against the position. The alert contained the four things needed to know in order to place the trade. It had the strike price, the expiration, and the credit that we wanted to achieve. With this information from this alert, I’m now going to explain to you how would enter this trade in tastyworks, and then I will explain to you how exactly you do this on Interactive Brokers as well. How To Enter A Trade In Tastyworks Once you bring up the tastyworks platform, the first thing that you need to do is enter the symbol. In the upper-left-hand side, we would enter WYNN because this is the stock that the alert went out for, so we type in W-Y-N-N. Now, the second thing is, as soon as we bring it up, you click on the “TRADE” on the left-hand side. After you click the “TRADE” tab, you have to select the expiration from the list that populates. According to the alert, the expiration we are looking for is October 30th so this is the expiration we would select. Now you’ll see all the calls on the left-hand side and all the puts on the right-hand side. You just click on the bid price, and after clicking, it’ll say “S1”. So this means now that you are selling one contract. Now, depending on your account size, you might want to sell more than one contract. This is why the alert will tell you the buying power that you would need to trade one option if you want to trade it cash secured, which I highly recommend you do cash secured, and that would be $7,000 for each option that you want to trade. So for me personally, in the account I was using, I wanted to trade three options so I adjusted the quantity until I saw three options. So the next thing is that you need to specify is the minimum amount of premium that you want to achieve. In the alert, I specified that you should receive at least $0.50 credit. The bid/ask of this option right now is between $0.80 for the bid and $0.84 for the ask, and it makes sense to go with the mid-price which most brokers suggest. Now click on “REVIEW AND SEND”, and then you have the opportunity to quickly reviewing your order. So now we have three WYNN options here that we are selling (-3), with an expiration of October 30th, and a strike price of 70. You’ll see a P which stands for “put,” and STO means “sell to open.” The limit order I used to sell it was at $0.82. Now $0.82 is above the $0.50 credit that I suggested that you get at a minimum in the alert, so if you are able to get more than the minimum, good, do it. There are estimated commissions and fees, and then you just have to hit “SEND ORDER” and the order gets placed. You now just have to wait to get filled. If you’re not getting filled right away, you can adjust your bid and ask, so instead of going for $0.82, you can then try lowering your bid to see if you get filled. As you can see, it’s very simple, and next, I want to show you also exactly how to do this on Interactive Brokers, and it’s just as easy. How To Enter A Trade In Interactive Brokers All right, so let’s go over how to place a trade with the Interactive Brokers platform. Now I will be using the information from the same alert we used when placing the tastyworks trade. This platform looks slightly different, but the functionality is always relatively the same. There will be a place where you can enter the symbol, so we are typing in WYNN as the symbol in the upper left. As soon as we hit Enter, it will ask us if we want to trade stocks, or do we want to trade options, so of course, we pick “options.” This will bring up the options chain. An alternative way to bring up the options chain is to click “New Window” above the field where you input the stock ticker and click “OptionTrader” to bring up the options chain. I will look almost similar to how it looks on tastyworks. So here again, we enter, simply W-Y-N-N and now we need to pick the expiration. The expiration going back to the alert is October 30th and a strike price of 70. Just like we did in tastyworks, after selecting the strike price of 70, we click on the bid. Once we click on the bid, it will bring up the order at the top. It asks for a limit order, and we can also adjust the number of contracts. So instead of trading one contract, we can trade three contracts. We can also adjust the limit order to 82, as we had with tastyworks. When we’re done, all we need to do right now is hit the T for Transmit. Summary As you can see, there are differences between these packages. I personally use Interactive Brokers a lot, and it is very popular with international traders. I also use the tastyworks platform and find it a little bit easier to use. Now you know how to place a trade according to the Wheel, using tastyworks and Interactive Brokers. Other brokers, other than these two, will be very, very similar. After reading this article, you now know what type of account you need for trading The Wheel Strategy, and you can use a cash account, a retirement account, or a margin. It doesn’t matter as long as you have Tier 1 options permissions meaning you can write/sell covered calls, and cash-secured puts. Within the platform, all you need to do is input whether you’re trading a call or put, the expiration, strike price, and what’s the minimum premium that you want to collect. It really is that easy.
NASDAQ:WYNNEducation
by rockwelltrading