It never makes sense to me to sell ITM (let alone DITM) puts, if that's what you're asking. I just don't like high risk, low reward trades. Bigger picture, it doesn't make sense to me to sell puts for the purpose of share allocation either, as I don't like the lack of control over my money in that scenario. There's just too much downside for me to say "I'm ok being put shares at 715" if there's room for underlying to run down to 650 (for instance).
I guess more meta here is that prices shouldn't just be random. Prices should be analyzed. If you're ok being put shares at 715,
why are you ok with that? If your logic passes some pre-determined set of criteria you've set for yourself (and not just a "that sounds like a good price" real time YOLO) then you're good to go. Otherwise, keep studying.
(There's a time and place for YOLOs too...but that's another conversation.)
To be clear, I don't do The Wheel, period. For me it is too high risk, too high maintenance, and too low reward. It really steers a trader into thinking that steady recurring revenue is A Good Thing, when in reality a trader should be focused on proper analysis.
I do sell options at opportunistic moments, but the sole goal is to profit off volatility, and my position structure is a spread, almost always either vertical or IC. (I don't do naked). If I want to profit off of underlying movement I buy options, often as part of a spread, usually horizontal and then (ideally) transitioning into diagonal.
I typically play earnings very cautiously, often very conservatively, capitalizing on volatility burn off in earnings week. My favorite play is opening ITM CCs a ~few days out. This time around I was a bit more bullish, and unfortunately it looks like its not going to go my way. I'm holding a number of ~4-6 month calls, a number of closer dated calendars, and a number of ATM covered calls. Tomorrow open is going to be a bad deal for my account balances.
Thank you
@bxr140, I want Neuralink to hurry up so I can upload that info into my head.... but your advice is really helpful.
one quick note, I guess I don't know what deep in the money is for a weekly. I assumed 5-10 dollars above strike is DITM... but probably not.
I’m kind of surprised there isn’t a situation where selling ITM put doesnt make sense, but I trust you on that... so I’ll explain my logic and would like to understand where I went wrong with the logic.
So, why do I think 715 is a “good cost basis”? For selling an ITM 750-755 put?
-My bear estimate is SP of 1000-1500 in 4 years.
- I had planned to buy premarket and exit before earnings call )maybe let it ride if price really soared today).
- when it didn’t soar, I thought selling a put with my “safety share” money would be ok
- 715 also seemed good because I could afford to buy and hold if it price dropped further
- I predict that the sp is going to end above 750 this week even with a potential sell-off post earnings)
- I thought selling the ITM put might be sort of “not dumb”.... because I would have a fair chance to keep the whole premium with my safety share money if price surged later in week
- there is other info I use (Gary black, papafox, others on this thread) to inform me on what is fair among other Tesla fans understanding tremendous amount of confirmation bias among us... I still respect Gary black for selling and jumping back on (honestly he sounds the most similar to how you describe using options, as a tool he knows how to use at certain Times).
still, I wouldn’t yet dare try my hand at what you are doing yet, because you seem like someone who knows what you are doing.... that requires real studying patience and time beyond my noobness...
i like the strategy of using weeklies that
@Lycanthrope does because I’m more afraid of stock running far beyond strike price of my covered calls and it seems like it’s possible to learn about options on very limited time duration
so for me, I currently see “the wheel” as sort of like growing my own weed.... while waiting for Elon to launch the hydroponics that will blow minds (although I don’t really smoke the weed.... I like the analogy
with time, I hope I might learn how to grow my own advanced strains of weed.... and one day, I’ll be trading in the fun edibles you mentioned .... “the Vega diagonal hydroponic“ as it were
anyway long Story short, because I’m an idiot... I abandoned my strategy at the beginning the day, and didnt account for my “real career” distracting me at the end of trading session. So I watched helplessly as my “backup share money“ profit melted away from 3K gain had I stuck to the plan and exited at 738, and sold my crappy ITM puts... and now am sitting on 400 shares purchased premarket @ 730 now down below the price... i wondered What I was missing and failed to act... and that for the moment has pinned me in the spot I am currently in...
not to worry, I hope by sharing my mistakes, someone in this wonderful might take pity on me and share their thoughts on how they might react in this situation (sell aggressive calls with these 4 weekly contracts if it goes a little green tomorrow)... or perhaps something I haven’t considered like a monthly...
situation is I have
1200 buy and hold shares to do some
“safe” weekly covered calls... perhaps staggering the strike Prices upward to give me a cushion to learn)
And also these now underwater 400 backup shares i purchased today before I squandered my quick trading gain just prior to getting distracted at work and then paralyzed at how fast stock price dropped AH... too Late to exit those shares without a loss... I was also too greedy to use stop loss...
being greedy and too fancy cost me today. because I wanted to make that backup share money earn a premium without too much risk.... and the ITM put seemed like a good way to do that .... but I’ve failed to act decisively so I lost an opportunity to be right with a “wrong” ITM put strategy