I rolled my 10 p1640 7/31 to 10 p1640 8/21. Another 41k of premium in the bank for a total of 432k since starting on June 10th. Return of 46% so far (goal is 40+% for the whole year).
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Wait, you sold 10 contracts at $1650?! So you are willing to take delivery of $1.65m of $TSLA at an effective 16% yield on a $1T valuation in 2028....I rolled my 10 p1640 7/31 to 10 p1640 8/21. Another 41k of premium in the bank for a total of 432k since starting on June 10th. Return of 46% so far (goal is 40+% for the whole year).
Wait, you sold 10 contracts at $1650?! So you are willing to take delivery of $1.65m of $TSLA at an effective 16% yield on a $1T valuation in 2028....
What's the exit strategy on this trade if we are in the start of a downtrend?
Wait, you sold 10 contracts at $1650?! So you are willing to take delivery of $1.65m of $TSLA at an effective 16% yield on a $1T valuation in 2028....
What's the exit strategy on this trade if we are in the start of a downtrend?
I can't speak for @Right_Said_Fred but what generally makes the wheel go, is being ready and willing (even eager) to take delivery of the shares (in this case), or to sell the shares at the strike for sold calls.
With the wheel strategy, the idea is that when assigned on the puts, you take the shares (10 positions in his case), and start selling covered calls - probably pretty aggressive ones - until assigned again. Or of course, you can just keep the shares and stop selling as well.
Cash to shares, back to cash, and around and around the wheel goes.
As long as the strike to strike (cash to shares, shares to cash) is even, then the premiums are all yours. To the degree that the strike to strike is against you, then the premiums offset that; gotta keep a close eye on that, as being sufficiently negative on the strike to strike transitions can wipe out your premium gains and cause you to start falling off the wheel (term that somebody else used up-thread - I like that and plan to reuse it ).
Given this shares and cash dynamic, I've realized that in my two accounts, I have opposite priorities.
In one account, that holds shares and almost 0 cash (>99% share value, <1% cash), my priority is to keep the shares. With so little cash though, I have very little leeway if I get assigned for the puts to get back to shares - I can only accept a very small loss and still get back to the same # of shares.
In the other account that mostly holds cash, my priority is to stay in cash. The motivation is more complex, but I'm more likely to be spending the cash in this account for living expenses or big purchases, and I'd prefer that I not tie up this money in shares for very long. Therefore, even though I've been steadily selling fewer puts in this account as the share price goes up (slipping off the wheel in terms of positions), it turns out that the account is generating more and more cash despite selling fewer and fewer positions, and I'm quite happy anyway.
Overall, this leads in the first account to selling far OTM calls and if assigned (rarely), selling close OTM and ITM puts.
In the second account, selling far OTM puts and if assigned (more likely due to writing higher delta puts), I would be selling close OTM and ITM calls.
The final observation from this week is that very high premium options create their own form of protection. I ended up in 3 positions with option premiums of $233, $175, and $119. Those very high premiums is what enabled me to get back to even and a little bit better this week, despite other positions losing a lot of money.
AND THUS my learning - instead of writing all of my positions as far OTM, I am going to start writing at least one of my positions in each account that is much closer ITM. Maybe these more aggressive positions are more like .30 or .40 delta, but either way, the idea is to court assignment on that 1 position, while generating the relatively large premiums in that one position from each side of the wheel. The big premiums are nice - the incremental protection from those big premiums look equally valuable (easier to close positions that go against me due to having more cash available to do exactly that).
The form that this took on Friday was to sell a put ladder in that cash centric account. I sold the ladder prior to the $100 drop on Friday (ah well), but setup there is (all for 7/31 expiration):
$1450 strike put, $40 premium, .33 delta at sale (and already ITM - I hope this doesn't go a lot more ITM )
$1400 strike put, $25 premium, .23 delta at sale (still OTM, but not by much.
These are the two that I'm actively courting assignment
Then a 1300 strike put at .12 delta for $10 premium
and a 1000 strike put for $1 premium (.01 delta). This last position is really using the last bit of cash to write what I can with it, rather than a serious position.
If the share price finishes below 1400 but not by a lot, then I'll easily be able to write similar strike calls for large premiums to convert shares back into cash on those 2 big premium positions.
And if the share price goes back above 1450 by Friday, then all of these positions will expire worthless and the higher premiums on those 2 contracts will enable me to push up that 1000 strike put to something closer (a 1075 or so).
Actually, I'll keep the premiums on the 2 large positions either way - unless very, very close ATM at expiration, I'll take assignment on those two. Worst that will happen is I'll sit on an extra 200 shares for months while we're waiting on the shares to come back up to this 1400 and 1450 strike range (oh the horror ).
The intention is to do a similar call ladder in the other account, though I'm a lot more conservative there. I'll wait for awhile, maybe days for the share price to bounce back, and maybe months. The idea will be similar though - write a pretty high delta (and OTM) call, a medium delta call, and then the rest far OTM. I'll be courting assignment on those one or two, with the intent that I'll be writing ATM and ITM puts to return to shares and collect some large premiums along the way.
So my thinking is that having 1 (or 2) position I'm actively moving back and forth will generate some large premiums, and those large premiums will keep the cash account closer on the wheel (# positions is constant or increasing) and provide some buffer / flex on the share account to keep all the shares intact (and maybe someday, have enough extra cash to write an incremental put position, and then acquire an additional share position.
I have the same problem in my IRA I don't have much cash to rebuy a covered call that I sold if it gets away from me so that's why I sell way OTM calls. I am trying to build a larger cash position by collecting the small premium from the OTM calls and sometimes I buy a Yolo here and there If feel it will work out. On my brokerage account I can be more aggressive because I can fund the account if I need to close it out call.
I've written a put ladder today for Aug 7
Sold a Jul 31 $1,450 put on Monday for $56. Yesterday it went in the money and they assigned it. I'm actually surprised they assigned me...if I were on the other side of that trade I'd want to hold those 100 shares if I already had them. Whatever...time to sell a covered call on those shares on Monday.
Are you planning on selling weeklies on that? Or going out 30, 45, 60 DTE? I’ve been avoiding doing covered call sales, got burned a few times.