Has anyone tried this strategy?

Market is too risky to sell Puts, wait for a strong market.

If the company your $20 puts you made $2 from 3months out goes bankrupt, you'll be $1800 out of pocket for each contract.

Odds on a few airlines going bankrupt are high at this stage.
 
no wheels, what about just naked puts, can it be a profitable strategy?

built in decay if not waiting it out to expiry, possible to close the option early - say 3mths to expiry, rinse & repeat

example: on SPXL last at $36.84 (low YTD ~$17.50) sell to open a deep out of the money long naked put $18 strike price October expiry pays $1.80 on money at risk, downside to break even $18-$1.80 = $16.20, at $18 buy to close the position.

https://www.barchart.com/etfs-funds/quotes/SPXL/options?expiration=2020-10-16

doing this with full cost, no margin, $1.8/$18, that's 10% for 6mths or 20% annualized.

would this be a good trade?

with enough available cash, could also add a ATM covered call October expiry.
 
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  • Wheel is a good name for that strategy.
  • Lots of work and you don't get anywhere financially - your broker would like it though.



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guru said:
Keep in mind that selling a coveted call is mathematically identical to selling a naked put, so this strategy is identical to either always selling naked puts, or always selling covered calls. For example when selling naked puts and you’re assigned shares, you could sell them immediately and sell another naked put for the same outcome.
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Less than 1% of traders understand that, but dont forget if dividend is involved the puts are more pricey, to a noob at least it will look that way
 
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