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Options-strategy

What Is The Wheel Option Strategy?The Wheel is an options trading strategy where first we are selling puts to collect premium. In the instances where we get assigned the stock, we’re then selling calls to collect even more premium. As you know, I’ve been actively trading “The Wheel” since the middle of the year (2020) and at the time of writing this, have yet to realize a loss. In this article, (based on a video from August 21st, 2020), I want to talk about a specific “Wheel” trade on UBER where we ended up getting assigned shares. Wheel Option Strategy Example: UBER Within The Wheel, there are three trades that can take place. The first is that we are selling puts. The idea here is to collect premium and to get assigned stocks at a discount, to buy stocks at a lower price than they are trading right now. Then once we have the shares, we are selling calls. So let me walk you through step by step of exactly how it works. Step 1: Selling Puts So let’s talk about the first trade that we did here. For the first trade, we were selling puts, and I want to take a look at the very specific example here. We sold 7 August 14th expiration, 30 puts at $0.25. So this is $25 per option. 7 of these, times 25 so we collected $175 in a little bit less than one week. The idea here was that I believe UBER would stay above $30 by this expiration, resulting in me just collecting the premium for the puts I sold. So let’s review all the trades I’ve taken in UBER through this period: I have eleven winning trades. Here is what happened with Uber. The price dipped below the magic 30. And here’s what happens. If it would have stayed above 30 we would just collect the premium, be happy, and sell more puts again. But on the day of expiration, UBER had a sharp sell off dipping below the put strikes I sold. Step 2: Buying Shares So we had to buy the shares and this is actually the second part of the trade. This is what the broker did for us automatically. We bought Uber at 30. Here’s the deal, for every one put that you’re selling you have to buy 100 shares. Now, something odd happened here. So I should have received 700 shares of Uber in my account because when you’re selling puts, it means this means you have to buy at the strike price that you’re selling it. So since I sold 7 puts, I should have received 700 shares. But for one reason or another, I only received 400 shares. Kind of a bummer, but it’s okay. Now, this premium, since we sold it, we are going to keep it. Whenever we sell an option and collect premium, we are going to keep it (the premium) no matter what happens. So now that I’m the proud owner of 400 shares of UBER at this stage, here’s where the next part of the trade comes in: Step 3: Selling Calls This is where now we start the “Wheel” rolling. This is the really fascinating part of the strategy and when it clicks, you’re going to see why I absolutely love it! With 400 shares of UBER, this means I can now sell 4 calls against my shares, creating what’s called a “Covered Call.” So we sold four calls at a strike price of 31 expiring August 28th. Again, this article was written based off a video I recorded on August 21st, 2020. And we sold those for $0.52. This means $52 per one option. 52 times 4 means that we received another $208. So this is the premium that we received and nobody can take this away from us. We’re not planning to close this trade and buy back this call, we would just leave it open. So to this point we have received $383. 3 Scenarios That Could Happen With Uber Now I want to look at three possible scenarios of what happens if Uber closed below $30 on August 28th. So in a week from now, we want to see what happens if Uber is below $30, if it is between $30 and $31, and if it’s trading at $31. First of all, the premium that we received for the puts we can keep. I mean, $175 is already ours nobody can take this way. This is in all scenarios here. We also receive the premium for the calls that we have sold here and that is $208 and nobody can take this away from us. Scenario 1: Uber is trading below $30 So let’s say Uber drops all the way down to $29. In this case, on our shares, we would have an unrealized P&L. This is important, unrealized, 400 times $1, would be -$400. Now the important thing, it’s unrealized because we kind of don’t care at this point, right? Because we’re not planning to sell Uber we are planning to hold it. At this point, the whole premium collected is $175, plus $208 so it’s $383. This is how much we have realized to this point, but remember in this scenario we would be underwater on our shares (or an unrealized loss). Now, what we would do here is sell more calls. But we’ll talk about this here in just a moment. Scenario 2: Uber is trading between $30 and $31 If Uber is between $30 and $31, let’s just say Uber is at $30.50. We bought Uber shares at $30, and in this scenario, it’s trading at $30.50, so we make 400 x $0.50. So we’re making $200 on our shares, plus we’re making $383 on the calls and puts that we collected. So this would bring our total to $583. Not bad at all. Scenario 3: Uber is trading above $31 If Uber is above $31, it doesn’t really matter because we sold 4 calls at a strike price of $31. So this means that we have to sell Uber again at $31. Yes, if it goes to $33, $35 we cannot participate, and that’s okay. It’s very likely that Uber stays between $29 and $31, maybe $32, right? If it rallies to $34 good for Uber. Again we’re talking about the next week that’s what our outlook is here. If this would happen, we would make $1. Because we bought 400 shares at $30, and if we have to sell it again at $31, we make 400 times $1. So this means that we are making $400. This is how much we are making on the stocks, plus the $383 that we received in premium we are going to keep. This here is our best-case scenario. So if Uber is below $30 we would sell calls again, and the Wheel would continue. If it is between $30 and $31, we sell calls, and if it is above $31 we are being called away, so we are getting rid of the shares. And this means that right now we would start selling puts again. Wheel Option Strategy Summary I wanted to show you this, and also very specifically, where we are right now with our Uber position. If you look at Uber right now, you’ll see that we are making money on our shares and we are losing a little bit of money on our calls that we sold, but right now, we are up $292. Now we hope that by next week we’re up either $583 or $783, and this would be the win of only two weeks. This is how the Wheel works, this is how the Wheel ‘turns’. The trades we are in right now are working quite well. Thus far we have a really great track record. If you found this article on the Wheel option strategy helpful, feel free to leave a comment below and share it with others who will benefit from reading it.
NYSE:UBER
by rockwelltrading
1
STRANGLE FOR PROFITThis year has been one of the best to be a (smart) trader. We've had absolutely historic opportunities and I'm sure there's more to come. This little ascending wedge (abcde) could be creating an opportunity for a strangle (long & short). I have several strategies I follow for the other indices but I will occasionally play a strangle where I can see it going either direction. Personally, I may wait until (E) is tagged and will buy a long position in calls and hedge that position with puts. There are other ways to play the breakout but I prefer to buy at (E) and wait until a target is reached (up or down). I also like to use options that have a medium term expiry (5-6 months out) so decay and noise aren't too dramatic. Let's see what happens!
AMEX:IWM
by gghsusa
1
Nov Hedge: VXX Calls - 20 Nov expiryI've been thinking of ways to hedge my trades to mitigate risk as my trades are mainly naked sold options contracts. This CALL trade is the first live trade of a hedge theory I came up with. If everything goes well this should expire uneventfully. This Trade is paid for using 15% of the total Premium from the 2 other Nov naked option trades. I bought the strike price as the previous 2 VXX spikes was between 40-50%. Nov Trade structure Trade 1 - SLG sold PUTS is aligned to the larger market direction (Bullish) and is the trade with the largest BP usage (40%). In this case, I did not utilize the full 40% as there was no reason to with my 5% monthly target Trade 2 - JETS ETF sold CALLS is opposite the market direction with a utilisation of 25% BP Trade 3 - Is the hedge. This VXX bought CALL is opposite the larger market direction and is funded from 15% of Trade 1 & 2 premiums I have left 25% BP free in case of margin usage Scenarios If everything goes well, my Hedge should expire uneventfully and I keep the premiums from Trade 1 & 2 If things go bullish, Trade 1 will be good, Trade 2 will be at risk, Trade 3 will be uneventful and Trade 1 will lower the loss of Trade 2 If things go bearish, Trade 1 will be at risk, Trade 2 will be good, Trade 3 will be good and the returns of Trade 2 + Trade 3 will lower the loss of Trade 1 It's not full risk coverage but the aim is to mitigate risk. Let's see how this goes and I'll continue optimizing this.
AMEX:VXXLong
by Ronin_trader
Pinterest gapping up ahead of ERPinterest stock just gapped up from $45 to $51 ahead of earnings mainly on a sympathy run alongside SNAP huge Q3 beat. Today, the stock moved into the $53 range. My expectation heading into ER is that PINS will follow Snap and post a big Q3 beat as I believe the ad revenue will be YUGE as more and more people have been home from COVID and they're spending more time online. I am liking this stock and I am planning to enter the 50-53 C ahead of Earnings next week which I believe are 10/29. On the chart we also see after the breakout that is, that the stock formed a mini bull pennant and broke out again to the $53 range. I love the stock, I love to own it long term, I am buying the calls! My PT for PINS is $70 by end of year. Lets see how this one plays out!
NYSE:PINS
by ThaMoneyHunter
A neutral strategy to squeeze AF - KLMHi all, Today I entered a trade in AirFrance - KLM which has been struck quite significantly by the pandemic. My guess is that they will recover in the coming months but there could be some nasty surprises on the way to it. To summarize: I expect some movement in this ticker the next few months. Directional trading is not easy since you basically need to be on the right side of the trade. My starting position is a 2.8 / 5 long strangle (10 contracts) with a position delta of 2 (-4 at the moment, which is ok, it wil fluctuate). I am long 375 gamma and short theta by 2. I will update regularly about the position but I already enabled some alerts to warn me when to hedge my delta's accordingly. Key focus: - Look for shorts when delta moves positive - Look for longs when delta moves negative Keep you posted.
EURONEXT:AF
by TheBirdisTheWord
5
Bull Put spread- happy to buy if exercised ; positive earnings Here is a global tech company / growth Gem in the shit times ( bargain?)....I 23% increased Revenue, and 197% profit > with more stellar growth pojected to the tune of +55%...With an all time high of $38 bucks, there's retest in the air over 12 months for a potential +55% mark up if get exercised on sold put at $24.50 by 15 OCT. If not stand to keep $500.00 premium paid after paying for long put below at $22.50. Technically its a GAP UP on great report NEWS, with a slow slide this month back to 50 SMA. A pull back buy. options spread: sold 15 OCT PUT (A) strike 24.50 ...10 contracts ( 1000 shares) for -$1.07 buy Put 22.50......................................for +0.57 net -0.50 = $500 premium paid today.
ASX:WTCLong
by Aussie-scalper
1
BUll put (credit) spread OCT at the moneyTHis is a fairly aggressive set up with two weeks to run left on OCT options. I see some recover from these over-sold levels, so I sold an at the money put at 2.71 strike with protection out of money below. It's aggressive because the possible loss if much greater than the win ( premium). But I figure this is compensated for by a lower probability of being on the wrong side. SOld 100 contracts ( 10000 shares) European Put option strike 2.71 OCT 15th......0.10 c bought American put 2.40 0.02 c net profit 0.80 ( $800)
OLong
by Aussie-scalper
GOOGLObservations Although there big engulfing red candle today, the 50MA held.. barely. The body of the candle closed above the 50MA. Such strong bearish movement is likely going to continue tomorrow and it will likely test the 100MA. There are some strong supports though. The candle closed above the trendline, in addition to the 50MA support. The next support would be the 100MA and the "middle of the Bollinger band". They seem to be converging at the 1500 level. The continued decline is likely consistent with the bearish momentum in the SPX & NDX Proposed trade I believe there's an opportunity for an iron condor here. I plan to set the short put leg between the 100 & 200 MA, while the short call leg can be set ~ the 1650 or 1700 level. This would be ~10 delta on each side.
NASDAQ:GOOGL
by BW11
NDX - Sell Credit Spread below 11,000The market can go either way next week, but likely down instead of up. It tested the resistance and failed. It's likely going to fall back and test the 50MA. Although I wouldn't take a directional trade, I would sell a credit spread with DTW before Oct 30th, with the short let at 11,000 or below. By the time it expires, 11,000 would be below 50MA and 100 MA which are both very strong supports fort his index. However, I urge you to close this trade prior to the elections lest something bad happens. NASDAQ:QQQ NASDAQ:NDX
NASDAQ:NDX
by BW11
JETS ETF bearish inclined naked calls - 13 Nov expiryOnce again I'm re-entering a JETS options trade given the low volatility . The industry is still weak and I don't think we will see much upwards movement in the next month especially with the US elections heating up and the focus still on CN, Tech and Healthcare. For this trade, I sold calls close to a key price resistance point. I did not cover this options trade as I realised my covered options did not protect when volatility increased and the strike got closer. For now I am leveraging S/R lines to determine strike price selection. I wonder if a potential hedge is a OTM VXX options position at a cheap low price point (When VXX is down, it means the market is up) Sold 80 Calls @ 0.30, Strike 21 BP block: 15k Max gain - est $2400
AMEX:JETS
by Ronin_trader
Options Idea: Buy The Jan. 21, 2022 INTC 40.0 Call @ $13.90Intel just gapped down after its last earnings release as margins tightened from almost 60% last year to 53.3%. Trouble lies ahead as well since Intel’s 7-nanometer manufacturing is delayed which will give AMD a 6 month head start to eat away at Intel’s market share. Intel has responded by initiating a huge $10 billion stock repurchase program. This is in addition to the Oct 2019 repurchase program already in place, bring total repurchases to around $20 billion. Even though Intel is in trouble, we think there’s an opportunity for a longer-term play. Observe the historic Price/Sales ratio for Intel in the weekly view. We are buying today at 2.75. We’ve marked entries over the last few years at the 2.75 PS level. Every entry would have been successful over a 1 year holding period. The 50 week average on the PS ratio for Intel is 3.32. Nevertheless, we like to reduce risk with options, so we are not going long in Intel. We are buying a deep in the money LEAP call on Intel today at $13.90, which gives us unlimited profit potential above $53.90 and limits our losses below $40. Since this is such a long term LEAP call, we have 16 months (or 72 weeks) to sell monthly or weekly calls against this position. So while our current breakeven point is $53.90, we intend to lower our cost basis through the sale of out of the money shorter term calls. This is strategy is called the poor man’s covered call. The important point is that with a $53.90 breakeven, the lowest priced call we can sell is $54. If we sell a lower priced call and INTC were to rise too quickly, the trade could lose money. Selling next month or next week 15 delta out of the money calls should produce more than enough income to compensate us for the loss of dividends on this position and reduce our breakeven to $51, which is where Intel was trading today when we opened our long position. Our objectives for short call income generation against this position are as follows: Initial Objective: $2.90 (Extrinsic Option Premium), reduces breakeven point to $51 Secondary Objective: $4.55 (5 Quarters Dividends on 100 shares) Stretch Objective: $13.90 (100% of capital recovered) If we complete our initial objective we’ll have recovered our extrinsic option premium, giving us the benefit of going long in INTC at no additional cost. If we complete the secondary objective we’ll have not only recovered the option premium, but also generated 5 quarters of INTC’s $0.33 dividend, making our position equal to a long position in INTC, but at 20% of the capital outlay. And our final stretch objective is to recover $13.90 over the life of this call, recovering our capital early. Standard Exit : We exit the trade for a profit when the PS ratio on INTC approaches 4. Early Exit : We exit the trade for a profit as soon as INTC has recovered the 50-week moving average. 20-INTC-03 Opening Date: Sep 1, 2020 Expiration Date: January 21, 2022 DTE: 507 IV: 35.81% IV Percentile: 69% Odds of Winning: 32.60% (before selling short calls) Odds of Losing: 67.40% (before selling short calls) Win: > 53.90 @ Expiration (before selling short calls) Loss: < 53.90 @ Expiration (before selling short calls) Reg-T Margin: $0 (long position, uses $1390 cash) Chart Legend Green Area: 100% Win Zone. If we finish above or in the green area, we’ve made a profit on our call. This is a long call, so our potential gain is unlimited. Red Area: If we finish in this area we have a loss. The size of the red area is the size of our maximum loss. Since we’ve bought a call instead of gone long, we have no additional losses below $40. 1 standard deviation, 2 standard deviation, 3 standard deviation projections from Opening Date to Expiration Date are included. Follow us here on TradingView to get updates as we adjust this trade with the short calls we will be selling against this position.
NASDAQ:INTCLong
by OptionsCoach
10