The "Wheel" Options Strategy - A Step By Step Walkthrough Of This Powerful Proven Trading Strategies
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- Опубліковано 23 лип 2020
- The Wheel Options Strategy - Proven Trading Strategies
This strategy is like “getting paid while you wait to buy a stock”. This is also one of the strategies known to be used by Warren Buffett.
This strategy is used on a stock that you're bullish on. It is used to profit on the downward movement of a stock, as the stock approaches your entry point.
For instance, let’s say that you’re wanting to buy shares of a particular stock.
However, this stock is currently trading much higher than your entry point.
Typically you would wait until the stock price moves lower before loading up on shares.
For this example, we’re going to use the stock ticker SQ. In this scenario, SQ is currently trading at $121.5 and you want to purchase the stock when it hits $100.
You’re bullish on this stock and you expect the price to go up, but you’re looking for the right entry point.
Because you want to buy this stock at $100, you sell a put option contract at the $100 strike price and receive a credit of $3.50, or $350. In this example, we execute the trade and the margin required for this position is only $1,000. Without a margin, the cost would be $10,000.
If the put option contract expires and the strike price is still above $100, you get to keep the $350. This would be a return of 3.5% in 35 days, which is the length of the contract expiration.
The stock is STILL above your entry point, but now you've earned 3.5%
Let’s say you repeat the process again, and you sell another put option contract at the $100 strike price. BUT the strike falls below $100 at expiration. If the strike price fell to $90 at expiration. You would be assigned 100 shares of SQ stock at $100 each.
Since the strike price is currently at $90, and you purchased the shares at $100, there is an unrealized loss of $1,000.
However, In this same transaction, you also made $350 in premium. Because you're longterm bullish on these shares, you do not sell them at $90 so there would be no loss realized. If you chose to sell them at $90, there would be a loss of $650. ($1,000-$350=$650)
Since you're the proud owner of SQ shares that you've purchased for $100, you can now sell call options against them!
Let’s say that you sell a $110 call option for 35 days out, with an expiration date of SEP 18. The premium received for selling this call option contract is $500.
As the expiration date approaches, the strike price moves down to $80. This would be an unrealized loss of $2,000 in the values of the shares, but you still earned a $500 premium. Because you're long-term bullish on these shares, you do not sell them. There is no realized loss, and you earned $500 in premium.
Up to this point, you were able to earn more than an 8.5% return, AND you purchased you still own the stock. If the stock trades sideways, and you still a call option contract, you STILL win with this strategy. The stock didn't increase in value, but you earned premium by selling call options.
If you sold a $110 call option, and the strike price moved up to $120, you earn $1,000 from the shares and the premium from the option contract.
Then you start the cycle all over again, because "the wagon wheel keeps turning"
Key Points:
1.) A powerful strategy that can deliver 30% per year, rather "safely". In this example, we earned 8.5% in 70 days which is more than 43% per year.
2.) It's important you choose a stock that is trending positive.
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20 * 100 = 2,000
I am so grateful for all the videos related to trading. I used to pay $3000 in rent for 1 bedroom apt here in nyc. I showed the trading videos to my landlord and he has now lost all his money, had to sell his building and his wife gave him a divorce. But I am saving $1500 every month in rent as he is my room mate now. I am really happy and grateful for saving $1500 every month.
Funny
You have to study hard and stary small. Your former landlord is a dunce.
😂
Good video. I have been trading the wheel strategy for a while now. It is a money faucet. Stocks and options together make the best business model. No tenants or employees to worry about.
That is awesome! .
Your style of teaching is exactly the way I like to be taught! Excellent work Markus, keep it up!
Thank you! :)
Very interesting!
@@rockwelltradingservices what happened with your $RIDE trade 🤣🤣🤣🤣🤣
@@markus5000 trash 🗑️
I have been looking for this info. EVERYWHERE. So glad I found your channel. Thanks for the sharing.
This is one of the most understandable, digestible expansions I've seen. Thanks.
Hi Staticks, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Markus is an excellent teacher. He is very systematic. He makes a difficult subject so easy to understand. Thank you Markus.
Thank you for the wonderful feedback! 😊
Perfect. Love the specific examples and use of step by step charts
Hi Caleb, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
the wheel strategy will be hard to execute if the underlying drops significantly because the least you should sell the covered call is at the price that you bought the underlying at.
This explanation on the wheel is so clear and simple. Thanks for the breakdown!
😊 You are welcome! I am glad that this helps!
I loved this video. You provide clarity. I actually understood everything you said.
Hi Michael, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Finally! someone I can understand! Observational learning is the way I absorb (and hopefully retain) knowledge quickly. You're a godsend to all the new and aspiring investors out there. Keep it up!
Hi Jay, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
This is the most comprehensive, entertaining, and simplest way to understand options. I have my series 7 and struggled to understand options for the longest time.
Thank you!
Awesome! Thank you for watching, David! ;)
I really appreciate your demeanor and clear explanations. It's clear you love what you do, and I've learned a lot from your channel
Thank you! :)
Love this video! Thanks for the lesson Markus! Really helped me understand this concept a lot. Happy Trading!
Hi Will Dale, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Yes is very helpful and you going on the right pace thank you very much and keep up the good work
Hi maxjoey, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Very easy to understand. Loved the clarity and the graphics made it that much easier. Thank you.
Hi Bill, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Good review. I have been using this strategy on an “investment” which I should have cut. It works. Also, my six year old really enjoyed this video, he watched the whole thing with me and commented on the profit amount and was asking me questions about options. I was pleased and surprised by his interest.
Hi Roman, that's awesome that your six-year old is already interested in trading. My kids started trading on a simulator when they were 10 years old. Can't start them early enough! 😀👍
Thank you for sharing, simple, detail, precise and easy to understand
😊 You are welcome! I am glad that this helps!
Great video. I’m new to trading and usually only do day trading through cheap stocks or options. Never considered actually owning stock, but now see a great benefit. You explain clearly and love the visuals. Thank you!
Keep learning! I am glad that you have started trading. ;) Thank you for watching!
Very honestly, from all the channels for option trading by far you are the best! am very happy to find you.
Hi Producer Qa, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
You are amazing I been looking for a video that can explain this method for a while cause it was confusing as heck... you made it very easy to understand!
Hi Alexander, thanks for watching. And thanks for your feedback. Much appreciated. Have you already watched the other videos in the playlist:
ua-cam.com/play/PLBa3sAx-Io2nosgosERUhIZwzvIgD-3Vq.html
Let me know if this helps.
This is perfection :) Thanks Markus, now I can share it with my buddies who think trading is rocket science.
You are welcome! I am glad that this helps! :)
You teaching is so engaging easy to understand, I’m on the wheel after learning from you 🙏👍
Awesome! Thank you for such kind feedback. 😉
Just wanted to say I agree with others that your way of teaching is awesome!!! I feel like I’m learning so much!!!
Thank you! :)
I've been doing this without knowing it has a name! Once I learned about calls and puts, I decided this is how I wanted to use the options.
Awesome! Thank you for watching! :)
Great lecture! I love how you explain this so simple and clear :)
I am glad that this helps! :)
Fantastic explanation. The onscreen notes are just the way i like to learn.
Awesome! :)
Hello your teaching style is just what I need. Thank you. I am interested in the upcoming course.
😊 You are welcome! I am glad that this helps!
I just luv your videos, always informative 👍👍👍
Hi GuitarHead, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Wonderful explanation! I am new to trading and this is such a wonderful strategy to learn. Love your podcast too! Keep up the fantastic content!
Thank you! I am glad that you like this. :)
Thank you Markus for your educational vids ! You rock !
😊 You are welcome! I am glad that this helps!
I'm subscribed. Love your teaching style.
Thank you! :)
EXCELLENT explanation, thank you! Love how you toss out an impressive 43% return and then casually state you personally prefer around a 60% return! Niiiiiccceee 💪😎😎😎
LOL - Thanks, Daddy Dude! Stay in touch, and let me know if you need help with anything. 😀👍
Hello ,What broker are you using on this exercise?
Wow... I'm blown away with this strategy. I'll admit I'm a super beginner when it comes to trading options, but I sort of grasp what you're saying... I need to study this and inculcate it in my mind by actually doing it - it's the way I learn.
Thank you very much for your tutorial. Amazingly informative
Miguel Sanchez
You are welcome! I am glad that this helps! :)
The most beautiful improper english ive ever listened too. Thanks for the help brother.
Lol. I hope this helps.
I really enjoyed the way you explained the wheel. It's clear and concise. Just got yourself a new subscriber
Awesome! ;) Have you watch my playlist about it? Here ua-cam.com/video/XMD5kJ62D5U/v-deo.html
Excellent course. Thank you
😊 You are welcome! I am glad that this helps!
My dude, you've just earned yourself a new subscriber! Thanks for the video; looking forward to seeing more!
Thank you! :)
I have learned a lot from your video, good strategy, thank you so much Markus, Keep it up!!
Awesome! Thank you for watching! :)
Thank you for the tutorial sir!
You are welcome! :)
I appreciate the teach...👍
In few years to come people will be kicking themselves in regret if they miss the opportunity to buy and invest in cryptocurrency. I'm new to the trading life, i just started trading forex and Bitcoin and I've made my first breakthrough, i wish i knew about trading earlier. Its truly a life changer if you're on the right path, luckily i was coached by an expert like Mr Markus, and he helped me achieve all my desired goals in trading. I'll advice anyone in need of professional assistance to reach him through what's App.
➕1⃣8⃣5⃣8⃣3⃣6⃣0⃣4⃣7⃣5⃣8⃣. you'll be glad you did
Very well explained! Thanks!
Hi Ênio Neves de Souza, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Very easy to understand. Thank you.
You are welcome! 😉
I've watched a few of these instructional videos on puts and calls this is the only one that explains it so I actually understand how it works sounds like a great strategy with little risk
Awesome! :) Thank you for watching.
Hey Markus, YES DO THE COURSE! Hugo here - your friend from "Compro"
Man, I keep stumbling back on these and learn so much.
Awesome! Thank you for watching! :)
You’re videos are great please keep it up!
Hi jimy2me, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Markus, I just recently discovered your channel. Very much enjoy your natural ability to convey information. You are a natural born teacher 👍
Something that has always troubled me as a new investor isn't the numbers or the "trends", it's: how do I find stocks in the first place???
There are millions of stocks. How do I figure out which ones to look for? And, more importantly, how do I look for them? (APPLICATION of knowledge is power)
If you haven't already made a video on this topic, can you?
Thanks again, hope to hear back from you!
Hi MH! If you want to know how I pick my stocks just go to mytradingroutine.com.
Much appreciated thank you!
You are welcome! I am glad that this helps! :)
Well explained, although since we are speaking plain vanilla here it would have been useful to mention that if you’re assigned the 90 C you need to have 9’000$ in your account so you are effectively -9k$ in your cash position.
not necessarily; you can close the position and roll the puts in time to collect more premium that can offset your loss; there are ways to minimize assignment risk
The problem is that if there is a panic you could lose a fortune. The price might not give you the chance to get out. I’m so confused how people think this is safe in any way.
Buying options sets your potential loss but selling options is insane. This strategy has wiped out way too many hedge funds.
I just ran a bunch of different scenarios and found my 10 grand was at risk to make 140 dollars. Not worth the risk in my opinion. Buffet must be pretty confident in the stocks he is trading.
wow thank you perfectly understood ..
Hi Ali Baba, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
I've been waiting for a video like this that explains it to me in a way I can understand... you must be a real teacher! lol
Subscribed!
Awesome! Thank you for watching and for subscribing! :)
Thank you this is helpful!
Thanks. Very good video
Hi Calin, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Thank you for explaining us this strategy 👏🏻 one question if I sell a put and before the expiration comes down to the price you are selling. Do I have to wait until the expiration or I can buy it as soon it pass through? Hope you understand my question and thanks again for your videos
Very well explained ‼I appreciate that you don't talk down to us but still give great info. This was very clear and well paced. The only problem, now, is that I have to watch all of your other videos because I'm betting you have a lot of experience to share. 🤣🤣
Lol! That is a good problem. Check my playlist for specific topics! ;)
Great video, I have learned a lot from this and your other videos. I had an earlier question posted but got the answer from your "When to take Profits" video! Thank you!
Great question. You have 3 options:
1.) You could just buy it back for a few cents and then sell it again when BAC rallies.
2.) You could let it expire worthless. If you have more than 5 DTE, I would buy it back.
3.) You could roll it but you probably won't get a lot of premium since BAC is down.
I personally would do 1).
Does this help?
@@rockwelltradingservices Thanks so much for your help. I bought it back at 84% profit and repeated the process again.
I am doing this strategy since few months. I liked your video. I agree with you about the return potential as I am achieving this with a higher percentage. :)
Hi Ranjit, thanks for commenting. Sounds like you're doing really well. Keep making money! As you know, there's not too many traders you can do that. Great job! 😀👍
Just curious as to which stocks you're running the wheel with.
What option date you open for the wheel strategy? A month out or week out for sell put?
Hi Markus,
Very Well explained.
Could you tell me if it is a good idea to get the maximum out of the trade by picking ATM options only, when choosing your strike prices?
Therefore every month you most probably have to Buy the Stock or Sell the stock. But the Premium collected would be much bigger.
HI Fitzroy, it really depends on your strategy: If you WANT to be assigned, then you can choose a strike price that's close to the current price. Yes, the premium is higher and so is the risk of getting assigned.
If you choose a strike price further away from the current price, then it's more likely that you "just" keep the premium and don't get assigned.
Does this help?
Very helpful and informative 😊
I am glad that this helps. ;)
I always stayed away from options but this video makes so much sense. I would be stupid not to sell options on stocks I already have. If I plan on selling a 100 shares of a stock at a certain price anyways in my IRA, why not collect a premium while I wait for it to hit my sell point or set it a little higher? If it triggers, not a big deal. I still make a profit I was planning on making anyways plus the free money while I waited. I did the math and I can make over $1500 a month just by waiting.
Hi A C, you are absolutely right: You can sell Calls against your stocks, as long as you don't sell more than 1 call per 100 shares you own. Hope this helps. 😀
Which stocks are you considering doing this with if you don't mind me asking? I'm currently wheeling WFC and MGM (and soon, T) but the premiums are incredibly low, unlike in the example in this video.
@@RIGHTNOW108 how has this worked for you so far? Thanks
@@cameronc7800 It's a learning process for sure. The end of 2020 and the first half of 2021, I was making 2500/mo selling puts.
Then I got burned on a few meme stocks late last year. My own fault for buying into the hype.
Now I'm being very conservative and pulling in 300-400 each month running the wheel on just a few tickers. The overall market is brutal right now
It is very helpful. Thanks
😊 You are welcome! I am glad that this helps!
Great Video Sir. Thank You
Hi Nicolas Bogado, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
really nice video, very well explained for a newbie like me.
Hi A'J B, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Thanks!
Great explanation!!
Thank you! :)
Fantastic video, than you for the good examples
You are welcome. I am glad that you like it.
I have been trading for close to 15 years now. The Wheel Strategy is the best one so far.
Thank you Markus for a great video!
My Son (44 y/o) clued me into this strategy back in early December 2020 and I have yet to lose a penny in the market. This video reinforces everything I have been shown and tried!
Awesome! Thank you for watching! :)
@@rockwelltradingservices My pleasure Sir. Anxious to see more new videos from you!
I live stream every Monday, Wednesday and Friday. See you soon!
@@rockwelltradingservices Thank you sir! Keep up the great work!
@@rockwelltradingservices Markus, Have you done a video on the "Iron Condor" Strategy?
Incredible work, brother! Hope all guys who have problems with money can solve it now🌎
Amen! ;)
Excellent ! I use the wheel and in one year received 130k on a 200k ira investment...
That is cool! 😉
Excellent presentation
Hi munahyd, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Thanks Markus, I started my wheel account 2 months ago and am already up 38%. I have been selling weekly contracts; thanks for the video it's helped me a lot!
Yeehaw! 😀😀 That's fun!
How much do you profit a week from this? I want to start doing the same. Kind of new
@@kavid8120 It's all in percentages. In general, the more volatile the stock the more premium you will you receive. Important to wheel stocks that you like and not stocks that just pay you high premiums.
I’ve been trying to learn this strategy from the trading with Henry channel and they guy makes it so complicated but thanks for this simple explanation
Awesome! 😊
Yah I am going to have to subscribe.you made it sound so simple.
Thank you! :)
Hi! Great walkthrough of the Wheel Options Strategy - Thank you ! Did you create the course you referred to in this video? Would love to see more.
Hi Suza, yes, I did create a course on this. Please contact my team at support@rockwelltrading.com, and they can give you more information. Talk soon! 👍
@@rockwelltradingservices 🙏🙏🙏
Awesome! :)
Hey Markus, love your videos! Hope you don't mind me offering two points of constructive criticism:
1). There's several typos in the video. For one, you said the put was sold for a premium of $3.20, but you wrote that the profit would be $350. Luckily I caught that it was a typo but that could throw some newbies off. Also you wrote Open &P but I think you meant Open P&L. That one confused me...I was trying to figure it out until you wrote Open P&L in the next scenario. (Side note: never actually heard that term before...I've only heard unrealized gains/losses or paper gains/losses, so that one was new to me).
2. If you're using a margin account don't you have to pay margin interest? So that would cut into your profits right? I haven't actually used a margin account personally so I don't know for sure...I thought it costed you something though. That would be another super helpful bit of info and would be an important consideration.
All in all it was a super informative video. I started dipping my toes into the wheel strategy last week, so I'm still doing research daily (but I have been a long term investor for about 10 years). Thanks for the video!!
Oh God, finally somebody that explain perfectly. Thannk you so mucho.
Did you launch the course?
I have a course about options here www.rockwelltrading.com/free/options-101-v1/ and you can also get the book about The Wheel Options Strategy here www.rockwelltrading.com/the-wheel-options-strategy-book/
WOW this is a wonderful strategy
Thank you! ;)
This was very informative ....
Hi Leonardo Cabrera, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Like your no BS approach! 👍
Thank you, David.
Best video out there
Awesome! Thank you! ;)
it is awesome video Markus, even somone who dont knows anything about wheel (actually it is me :)) can understand what it is.
I only wonder after 70 day if stock is below 80 dollar so what you do ? just waiting stock to go up above 100dollars or dont youopen new option ?
Awesome, I had never heard of this strategy.
Now you know. ;)
@Marcus Heitkoetter Hello! Thanks for this strategy. Starting right away while markets get a regular rythm.
I have a question. 30% ROI is over the total buying power, so if you have a margin account 2:1 you could aim to 60%, Am I correct? In IB I got a margin account 4:1, I was wondering if in this case I should use the totality of the buying power and aim for 120%. As always, thanks for your support. You have no idea how this channel has impacted my life.
Hi Juan Pablo, yes: you are correct. The 20% are based on a CASH account. So with a 2:1 margin, you can expect twice as much, i.e. 40%.
And a 4:1 margin should give you 120%. Be careful with margin and leverage. It can work for you, and it can work against you.
Anyhow... keep up the great work! 😀👍
@{Forbidden.Knowledge} You're right! I confirmed this with the broker. Will have it on mind. Thanks a lot!
thank you, well explained and good visuals, though i wish there was less beginner stuff for a video on the Wheel strategy,,, most beginners shouldn’t be doing this.
Awesome! :) Thank you.
Markus, this is great. Do you have any videos for trading stocks with PowerX Optimizer or is this not an option? I am on the fence about the software, but not sure options is my route yet.
Hi Allen, in the last few "Coffee With Markus" Episodes, I'm explaining how to trade stocks with the PowerX Optimizer. Here's the link to the playlist: ua-cam.com/play/PLBa3sAx-Io2kCH7pMVubLPhUqGcsR-FQf.html
Let me know if this helps. 👍
Hi…
Can we sell covered call options for far off the time…@ when it will get assigned…
Thanks
Thanks
You are welcome! :) Thank you for watching.
Interested!! Wheel :) Great idea 👍
Hi Geri Burke, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Dude u rock!!!!
Thank you! :)
Great presentation. Very interested in further courses
Awesome! Do you have the book already? Here is the link to get a copy www.rockwelltrading.com/the-wheel-options-strategy-book/
Good explanation!
Awesome! Thank you for watching! :) By the way, do you know about The Wheel Calculator? It is already integrated into the PowerX Optimizer software. If you have not availed of the special offer yet, here is the link www.rockwelltrading.com/products/10-44-powerx-optimizer/
Best video I have watch on option wheel strategy by far! Keep producing great contents like this 👍👍
Do you have a course on the wheel strategy? Sounds great
Here is the course we offer www.rockwelltrading.com/products/the-option-income-wheel/
Hi Eugene Tan, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Great stuff - thanks so much :-)
😊 You are welcome! I am glad that this helps!
the caveat for this is when the stock price does not crash, which he did not mention in his video. in his example, u can only short the call when it reaches above $100 to have have positive returns from the stock (1st column). In a case of recession or bear market, stock price may plummet 50% to even $50 and this could take 1-2 years to recover. In this scenario, you will just have to hold onto it for dear life before you can effectively use the wheel strategy.
Fantastic video!
Awesome! Thank you for watching! :)
good content. thanks
😊 You are welcome! I am glad that this helps!
Is there anyway to track the wheel strategy for multiple stocks at a time on preferably one excel spreadsheet? Or do I have to use one spreadsheet per stock? I have a spreadsheet for adjusted cost basis but it only does one stock at a time. Thanks in advance
With the latest version of PowerX Optimizer, you can track up to 100 stocks with the scanner :-)