Hedging the wheel

[markthepadrone]

@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.

Thanks.

Being pegged at 70 isn't the worst thing in the world. Every time you sell a CC, that number comes down. Just think of it this way, when you sell a CC a percentage is for the income and the rest is for basis adjustment. The platform still says you lost your ass, but your making money.

I'm pegged at 28.5 right now. So I have to be careful with the calls I sell. I'll probably still sell 30 deltas, I'll just watch them more.

What level do you sell at? I find that 30 delta is a sweet spot for me. A good balance of premium vs assignment/call away.

 

[markthepadrone]

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.

Normally I'd agree. The trouble is that TQQQ being a 3X product really swings around so it's hard to tell if your in a small draw down or about to lose your ass. And yes, sometimes I'll sell two or three weeks out if the premium warrants it.

My preference is to go out one week, hold to expiration and take my lumps Monday morning.

 

[destriero]

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.

Just looks that way.

 

[markthepadrone]

Just looks that way.

Yes, that I'm new here and there are plenty of a holes waiting to throw stones from behind their monitors in their mother's basements. I agree.

 

[destriero]

Practitioners of the wheel are criminally stupid. But sure, add futures to the mix and post that shit here. I don’t post much any more but I’d love to railbird the ensuing debacle.

 

[newwurldmn]

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.

Trading "a wheel" for income is like funding your life by playing roulette. You sell the upside for money now and that's it. "Hedging" makes it not a wheel and instead a very different trade: one that requires math that only an autist can do.

 

[destriero]

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.

Short a put -> assigned -> long TQQQ -> short n-MNQ -> what happened to the short 30D calls? So you’re going to take a loss, flatten your D1 exposure and short what are in effect naked calls? Brilliant.

 

[BlueWaterSailor]

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.

You can reduce your exposure with the underlying, futures, or options. The real question is, what are you trying to achieve with your hedge? All you'll be doing is locking in the losses that you have at the moment - and paying the fees for those /MNQ contracts (both in and out.)

 

[destriero]

Trading "a wheel" for income is like funding your life by playing roulette. You sell the upside for money now and that's it. "Hedging" makes it not a wheel and instead a very different trade: one that requires math that only an autist can do.

When we were all in LV a guy at Caesar's was martingaling outside bets to table limit repeatedly. Walked out losing $150K or so. I didn't think it possible.

 

[BlueWaterSailor]

Short a put -> assigned -> long TQQQ -> short n-MNQ -> what happened to the short 30D calls? So you’re going to take a loss, flatten your D1 exposure and short what are in effect naked calls? Brilliant.

Ye ghods and little fishes. I missed that he was doing both.

Yeah, there are better ideas out there... self-trepanation comes to mind. But yeah, it's just all these Awful Meanies(tm) on ET jumping on innocent, helpless newbies. Must be that's what it is, and not, say, well-meaning people who know what they're doing screaming "STOP! For god's sake, stop what you're doing!" as they see the spurting blood and the bone fragments flying in all directions...