How to Buy Low and Sell High in Today Market Using Options Wheel Strategy
- Thread starter winstonwee
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Wow, quite a load of assertions. All wrong, unfortunately - but certainly very assured-sounding. 
Options are an efficient way to express a view on an underlying. Buying or selling stock is very capital-inefficient, by comparison; without using options, it's a crude 50/50 bet that ties up your money. Some like it, and I'm not denying them their hobby - but it's worth noting that the largest positions professional funds have these days are in options, not in stocks.
I'm sorry, but this is utter nonsense. Why in the world would you do either of those things? If the stock is in an uptrend, or even stays where it is, you simply collect your premium (this is, in fact, what happens the majority of the time.) No stock operations occur.
You do understand that assignment occurs if a strike is even a penny ITM at expiration, right? The OCC doesn't know or care about the premium you received; it's not a consideration during assignment.
But let's take this "awful" case where the stock has dropped so much that your put is DITM, and your can't roll out for credit. Yep, you're down money... but you're still better off than someone who bought the stock, by at least the amount of that premium. That is, if we both entered at 100 and the stock dropped to 95, you're down $500 while I'm down $200 (assuming a $3 premium.) How am I worse off than you? And since options are so awful, you're stuck hoping for the stock to recover... meanwhile, I'm selling a call against this stock - which brings my basis above my cost, whether the stock is called away or not. I'm better off than you in almost every case.
Once again: premium is not taken into consideration during assignment. Where did you come up with this idea?
What you're talking about is FOMO. "But if the stock goes up, you could miss out!” But if the stock stays where it is - and the market typically goes sideways most of the time - you will miss out. While I will make money every day via theta. And if the market goes up - great! I make my full call premium, I recover my buying power by having the stock called away, and I'm back in market with another options trade - while your capital is *still* tied up, AND you're just beginning to recover from the losses you took when it went down earlier.
Unless you imagine a fantasy world in which you can pick bottoms and tops for your trades while I can't for mine, I'm better off than you in pretty much every case.
Since that's the direct opposite of how it actually works - liquidity and stability of the underlying are major pluses in doing the wheel - your understanding of it just might be a bit off the mark. Learning about it before making such self-assured statements would be a good thing.
I'll also note that this isn't a competition: if you like picking stocks and it works for you - great, I wish you the best of luck. But as soon as you add "...so any approach other than mine SUCKS!”, then you're engaging in childish dick-measuring contests. There's no reason to do that, and it's not a good look.
Options are an efficient way to express a view on an underlying. Buying or selling stock is very capital-inefficient, by comparison; without using options, it's a crude 50/50 bet that ties up your money. Some like it, and I'm not denying them their hobby - but it's worth noting that the largest positions professional funds have these days are in options, not in stocks.
I'm sorry, but this is utter nonsense. Why in the world would you do either of those things? If the stock is in an uptrend, or even stays where it is, you simply collect your premium (this is, in fact, what happens the majority of the time.) No stock operations occur.
You do understand that assignment occurs if a strike is even a penny ITM at expiration, right? The OCC doesn't know or care about the premium you received; it's not a consideration during assignment.
But let's take this "awful" case where the stock has dropped so much that your put is DITM, and your can't roll out for credit. Yep, you're down money... but you're still better off than someone who bought the stock, by at least the amount of that premium. That is, if we both entered at 100 and the stock dropped to 95, you're down $500 while I'm down $200 (assuming a $3 premium.) How am I worse off than you? And since options are so awful, you're stuck hoping for the stock to recover... meanwhile, I'm selling a call against this stock - which brings my basis above my cost, whether the stock is called away or not. I'm better off than you in almost every case.
Once again: premium is not taken into consideration during assignment. Where did you come up with this idea?
What you're talking about is FOMO. "But if the stock goes up, you could miss out!” But if the stock stays where it is - and the market typically goes sideways most of the time - you will miss out. While I will make money every day via theta. And if the market goes up - great! I make my full call premium, I recover my buying power by having the stock called away, and I'm back in market with another options trade - while your capital is *still* tied up, AND you're just beginning to recover from the losses you took when it went down earlier.
Unless you imagine a fantasy world in which you can pick bottoms and tops for your trades while I can't for mine, I'm better off than you in pretty much every case.
Since that's the direct opposite of how it actually works - liquidity and stability of the underlying are major pluses in doing the wheel - your understanding of it just might be a bit off the mark. Learning about it before making such self-assured statements would be a good thing.
I'll also note that this isn't a competition: if you like picking stocks and it works for you - great, I wish you the best of luck. But as soon as you add "...so any approach other than mine SUCKS!”, then you're engaging in childish dick-measuring contests. There's no reason to do that, and it's not a good look.
Wow, quite a load of assertions. All wrong, unfortunately - but certainly very assured-sounding.
Options are an efficient way to express a view on an underlying. Buying or selling stock is very capital-inefficient, by comparison; without using options, it's a crude 50/50 bet that ties up your money. Some like it, and I'm not denying them their hobby - but it's worth noting that the largest positions professional funds have these days are in options, not in stocks.
I'm sorry, but this is utter nonsense. Why in the world would you do either of those things? If the stock is in an uptrend, or even stays where it is, you simply collect your premium (this is, in fact, what happens the majority of the time.) No stock operations occur.
You do understand that assignment occurs if a strike is even a penny ITM at expiration, right? The OCC doesn't know or care about the premium you received; it's not a consideration during assignment.
But let's take this "awful" case where the stock has dropped so much that your put is DITM, and your can't roll out for credit. Yep, you're down money... but you're still better off than someone who bought the stock, by at least the amount of that premium. That is, if we both entered at 100 and the stock dropped to 95, you're down $500 while I'm down $200 (assuming a $3 premium.) How am I worse off than you? And since options are so awful, you're stuck hoping for the stock to recover... meanwhile, I'm selling a call against this stock - which brings my basis above my cost, whether the stock is called away or not. I'm better off than you in almost every case.
Once again: premium is not taken into consideration during assignment. Where did you come up with this idea?
What you're talking about is FOMO. "But if the stock goes up, you could miss out!” But if the stock stays where it is - and the market typically goes sideways most of the time - you will miss out. While I will make money every day via theta. And if the market goes up - great! I make my full call premium, I recover my buying power by having the stock called away, and I'm back in market with another options trade - while your capital is *still* tied up, AND you're just beginning to recover from the losses you took when it went down earlier.
Unless you imagine a fantasy world in which you can pick bottoms and tops for your trades while I can't for mine, I'm better off than you in pretty much every case.
Since that's the direct opposite of how it actually works - liquidity and stability of the underlying are major pluses in doing the wheel - your understanding of it just might be a bit off the mark. Learning about it before making such self-assured statements would be a good thing.
I'll also note that this isn't a competition: if you like picking stocks and it works for you - great, I wish you the best of luck. But as soon as you add "...so any approach other than mine SUCKS!”, then you're engaging in childish dick-measuring contests. There's no reason to do that, and it's not a good look.
The OP asked for feedback and comments. I was just giving some of mine. My comments are for the OP, not really for you, just so you understand.
What I am talking about is opportunity cost. The thread's topic is "Buy Low and Sell High". My point is if you are able to buy low and sell high, why not buy it at really now and sell it at full high? Why get eclipsed by options assignment with the compensation of the tiny premiums and still face the unhedged and unprotected downside risk? Why pay $40 for a stock when you could've paid $20 for a stock and why only get $50 when you sell it when you can tp for $100? To me, it's just not worth it.
This is to you @BlueWaterSailor: Of course if always overpaying to buy a stock and/or cutting yourself short of making the full profit for the compensation of collecting tiny premiums of at most a couple of dollars with all the potential risk of a huge downfall not hedged or protected in any way shape or form is your cup of tea, by all means, enjoy your wheel strategy. The market loves fodders like you for us to make more profit.
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Sorry if i were to and can buy the stock at $20 and sell it for $40 i would do it all the time. Which stock should i buy now? And when will it double?The OP asked for feedback and comments. I was just giving some of mine. My comments are for the OP, not really for you, just so you understand.
What I am talking about is opportunity cost. The thread's topic is "Buy Low and Sell High". My point is if you are able to buy low and sell high, why not buy it at really now and sell it at full high? Why get eclipsed by options assignment with the compensation of the tiny premiums and still face the unhedged and unprotected downside risk? Why pay $40 for a stock when you could've paid $20 for a stock and why only get $50 when you sell it when you can tp for $100? To me, it's just not worth it.
This is to you @BlueWaterSailor: Of course if always overpaying to buy a stock and/or cutting yourself short of making the full profit for the compensation of collecting tiny premiums of at most a couple of dollars with all the potential risk of a huge downfall not hedged or protected in any way shape or form is your cup of tea, by all means, enjoy your wheel strategy. The market loves fodders like you for us to make more profit.
Let put fact and figure down
Give a stock that we should buy now and give a target we should sell
Meanwhile i still doing wheel because i am not confident that the stock i pick will double
And is hard to stock pick let face it. I am lousy
I will be selling premium both side and just collecting 1% a week and am happy with 50% roi a year.
To me you have just assume the stock market will go up which is generally true but when will it double.
No doubt a lot of stock double or triple and tsla went up 700% if you pick it at the buttom. Lot of trader make few hundred % last year but i make only 70% but am happy with my result
I dun know if you are naive to expect this year to be the same as last year but if it is the same i would be very happy to make another 70% roi and let others make their 300%
And just so you understand: I was fairly certain that you'd get up on a high horse rather than admit to being as utterly lost and wrong as you are, so my responses weren't really for you. I simply pointed out where you're clearly talking without having any clue - which is what you're continuing to do.
Several people have pointed that out to you so far, but you continue to double down on your senseless assertions. <shrug> Good luck with anyone taking you seriously on this topic from here forward. I certainly won't.
Because - hello! The clue phone is ringing, pick it up! - you don't know where the low or the high is. End of story.
So, since you prefer to be wrecked by guessing wrong, bag-holding waterlogged stock for years with negative returns, getting margin calls, and having people laugh at you when you express your cluelessness and frustration about options, I'll let you go on your merry way. Good luck, and stick with it - I'll happily take the liquidity you and the other Robinhood "just buy and hold" types provide. Ta-ta!
I think you are too rough on him. I totally agree with opportunity cost point. As swing traders we TRY to buy the pullback at the time when it looks to be over. And we try to exit when the move looks exhausted. Of course we don’t know for sure, but it’s still better than some pre-determined level ahead of time. And also, if stock dumps/jumps because of some fundamental news, we have a choice not to buy/sell it at all. He is just pointing this out as a negative feature of the wheel strategy.
Really? The guy's "argument" is "yOu BuY $20 sTOnK fOR $50!", and you see him as someone capable of rational thought? Good luck with that.
Do you suppose that option traders are trying to do something else? Are you engaging in the same fantasy as him, where you are somehow magically better at it simply because you trade stocks directly instead of via a derivative? How does THAT work?
And all of that applies to options, in varying degrees - except with a greater margin of safety due to the collected premium.
This tired-ass argument isn't about the wheel; it's the same "stocks are better then options" fanaticism, with zero rational basis. It's boring and it's stupid. And you want me to be all sweetness and light on someone hijacking an options-specific discussion to ride that hobbyhorse? Yeah... not today.
Yes, because you sell OTM puts and you don’t know if the stock will cut through that strike level or not. Where swing traders wait to see where that new level may be and then decide if they want to engage. That is where opportunity cost comes in - swing trader is getting in at possible bottom or not at all, while put seller is scrambling to repair the position.
I am not saying one is inherently better than the other, but as @JSOP pointed out, “buying low and selling high” is not an honest way to describe the strategy. Maybe “buying at small discount and selling at a slight premium” is more appropriate, but not really.
I don’t know where you got that from. Different tools to accomplish same result. The Wheel makes real money getting assigned the stock on pullbacks and riding it back up, right? I would not call that an options strategy really.
So, imho, this thread should be titled - buying dips, selling rips, and collecting options premium in between. Still sounds pretty good to me.
This is exactly what i have found out after 8 months of doing this...the only way you can beat that particular stock/underlying is to be out when it is high and get back in when it has drop back to a low point. Essentially, you are trying to time the market. I think some that do it on different stocks might not really see that if they are frequently jumping from one stock to another. In essence, unless you have a way to time or predict high and low , you might underperform buy and hold (when you include all the comm + your time and other resources put into doing the wheel)