Hedging the wheel

M

markthepadrone

Hello all, I new here. I've begun wheeling TQQQ for income. I'd like to hedge a bit when I get assigned on my puts.

My thought is to short /MNQ contracts with a nominal value equal to my TQQQ position. I don't know a whole lot about futures so. . .

My other thought is to buy SQQQ to offset but since it's all cash for these, that gets expensive.
 
You do not know a whole lot of futures but want to build a complex spread? What are you attempting to extract from this trade? What edge are you exploiting here? It sounds more like you read some nonsense on forums or books or were gullible enough to listen to some of the "coaches" here. Spreading Nasdaq and SPX especially involving options is best left to those who really understand the intrinsics of such trades.

markthepadrone said:
Hello all, I new here. I've begun wheeling TQQQ for income. I'd like to hedge a bit when I get assigned on my puts.

My thought is to short /MNQ contracts with a nominal value equal to my TQQQ position. I don't know a whole lot about futures so. . .

My other thought is to buy SQQQ to offset but since it's all cash for these, that gets expensive.
More...
 
Wow, thanks for all the good words and positive encouragement.

I said that I was new here, not to the planet or to trading.

As far as my comment about not knowing a lot about futures, I simply said that so some brass a hole wouldn’t ream me out for not knowing every little nuance of them.
 
So, what edge are you trying to extract then? Hard to help if you can't point out what your play here is...

markthepadrone said:
Wow, thanks for all the good words and positive encouragement.

I said that I was new here, not to the planet or to trading.

As far as my comment about not knowing a lot about futures, I simply said that so some brass a hole wouldn’t ream me out for not knowing every little nuance of them.
More...
 
The option wheel strategy is a very common simple strategy.

I sell cash secured puts, one week out, at around a 30 delta and collect the premium. If it expires worthless, great. If I get assigned, then I'd like to 'hedge' that position by getting into a high leverage device to balance my positive delta with an 'equal' negative delta. Since my goal is to collect premium, I want to be overall delta zero.

Once 'pegged' at my assignment, I sell week out covered calls against it until it gets called away. Then I go back to the puts.

When I'm pegged, I'm subject to down side risk that I'd like to offset with a hedge. This would reduce my risk when selling the calls. If the market slides while I'm pegged and I sell a covered call below my basis, the difference can really add up fast.
 
@markthepadrone , hi.

Firstly, don't take any abuse you get personally - there seems to be an un-written rule here that newbies are rarely treated with any respect. I got tons of insults and abuse when I started posting, and I couldn't understand why. It appears that a newbie is a convenient punching bag for the 'experienced' folk here, who want to boost their fragile egos. Just push back and don't be afraid to tell people what you really think.

Secondly, I've wheeled TQQQ myself, and I'm still bag-holding it. I got assigned at 70 (yeah seriously), and I can speak from first-hand experience that wheeling TQQQ is like playing with fireworks. They look great when they light up the sky, but not so much when they blow up in your face. TQQQ gives great premiums, due to it's extreme volatility and therein lies the double-edged sword. So, if you have the opportunity to get out of the trade, I would recommend it.
I assume your short puts will be assigned soon (maybe this weekend?) - just write calls against your stock and lower your cost basis and if you can get out at B/E, then do it, and count yourself lucky.

As for hedging with futures....hmm.....not sure that I would want to complicate the trade any more. For one, it's difficult to model the combo using broker software, and I like to have a visual image of the P/L chart of my trades. The idea of the Wheel is that selling calls against your stock is the 'hedge'.

Also, try selling puts which are more than one week out. This gives you more breathing space, albiet the daily theta decay is lower, of course.


Good luck.
 
Maybe buy a TQQQ put a few strikes below what you sold and for a longer duration? I am just starting to get into the wheel (currently I trade outright futures) so my opinion/advice is to be taken with a grain of salt. I sure hope if I am wrong some kind soul on ET will set me straight.
 
markthepadrone said:
Hello all, I new here. I've begun wheeling TQQQ for income. I'd like to hedge a bit when I get assigned on my puts.

My thought is to short /MNQ contracts with a nominal value equal to my TQQQ position. I don't know a whole lot about futures so. . .

My other thought is to buy SQQQ to offset but since it's all cash for these, that gets expensive.
More...

Long call spreads on SQQQ?
Current price 50.30
Sept 23 ... 50/55 C. Spr. @ 1.70
Max profit ... 3.30

***Not a full hedge just offsets some losses if the market continues to fall. If the market rises you give up 1.70 of profits but get called away so you can start over with naked puts. If you short MNQ with a perfect offset then your risk is the top side if the market screams higher as your TQQQ is capped but short MNQ has unlimited losses.
 
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Thanks all. It just kills me to spend premium on long options. The Theda loss just eats at me.

Hedges bother me also. I don't like setting myself up with an 'acceptable' loss if the market goes up.
 
How did the wheel strategy perform in 2008? Not saying we're in 2008, but if you just blindly apply it, then prepare for big drawdowns. If you're only selling 1 week out, then you're expecting price to not move around much. I'd go 1 month out and further OTM and look to take the trade off on a short-term rally or when it makes sense (for example if you're able to get 50% of the max profit after only 1 week). 1 week out just does not give you much flexibility. Also, if I was doing that, I would not just sell a put, but also a call unless you're very bullish on the underlying.
 
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