How to Buy Low and Sell High in Today Market Using Options Wheel Strategy

[JSOP]

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?
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%

No this has nothing to do with the prediction of future moves. I am not talking about whether the stock will reach a certain price or not. I am saying when the price of the stock WAS ONLY $20 and you had to pay $40 to buy it at double the price AT THE SAME TIME because you got assigned from shorting the put when you could've really bought it at $20 because that price was available to you. And when the stock ALREADY reached $100 at the same time you are only going to get $50 from again being assigned from shorting the call. Again that $100 is already reached, not some price that you still have to predict whether the stock will reach or not. The stock has already reached that price, $100! But because of the assignment of the call, you could only get $50 when you could've sold it for $100 if you've held stock itself or even a call. Opportunity cost is what I am talking about and I am just using arbitrary prices.

And quite honestly if you have call strike being so far apart from the put strike, you wouldn't be earning that much premiums. But if you want to earn some decent premiums then you would need to have the call and put strikes to be closer to each other and that just cuts off the potential profit even more especially should the price goes up for a large amount with the possibility of a potentially huge downfall that is unprotected and unhedged.

Anyway you said:

Winston Wee
I welcome all feedback and comment and discussion

So I am giving you feedback and comment and discussion.

 

[JSOP]

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.

No this wheel strategy is not even "buying at small discount and selling at slight premium" it's "overpaying to buy and cutting profit short to sell for a small compensation". Anyway like I said before, they will be our fodders. We need them. So Hooray @winstonwee, great strategy!!

 

[winstonwee]

No this has nothing to do with the prediction of future moves. I am not talking about whether the stock will reach a certain price or not. I am saying when the price of the stock WAS ONLY $20 and you had to pay $40 to buy it at double the price AT THE SAME TIME because you got assigned from shorting the put when you could've really bought it at $20 because that price was available to you. And when the stock ALREADY reached $100 at the same time you are only going to get $50 from again being assigned from shorting the call. Again that $100 is already reached, not some price that you still have to predict whether the stock will reach or not. The stock has already reached that price, $100! But because of the assignment of the call, you could only get $50 when you could've sold it for $100 if you've held stock itself or even a call. Opportunity cost is what I am talking about and I am just using arbitrary prices.

And quite honestly if you have call strike being so far apart from the put strike, you wouldn't be earning that much premiums. But if you want to earn some decent premiums then you would need to have the call and put strikes to be closer to each other and that just cuts off the potential profit even more especially should the price goes up for a large amount with the possibility of a potentially huge downfall that is unprotected and unhedged.

Anyway you said:


So I am giving you feedback and comment and discussion.

yes feedback is always welcome

I have to disagree with you on some point
let take a look at IPOE which is currently at $22 - 23 I can be selling a 20 put and getting premium without being assign
where in your case you could be putting a limit buy order and never really get a filled because the price never drop and I am pocketing premium monthly because ipoe is a monthly options
and if ipoe did drop you could be putting it a sell limit order at $100 to sell away but this trade may never get filled or wouldnt know when it will hit $100 while i am busy selling call and getting premium and repeating the whole wheel

let look at a real example in which i get assign and on nio stock at 58 and selling premium on it
I aim for 1% premium for put and call every week and that is 4% a month. And when you sell 1% premium on nio you can sell it a few dollar away of course I can never have the 200 - 500% gain selling a call options

but if you have had a limit buy at 58 and you are filled now you would be sitting on a loss (sure no big deal) and waiting to sell it at $200 which may or may not ever occur but I would be busy selling put and call



it is just a different way of trading i certainly would not want to be holding a stock and not generating income from it (apart from dividend)

 

[BlueWaterSailor]

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.

You don't get to make an argument against a position that you don't actually understand and insist that your version is the right one. All other things being equal, options traders don't take positions blindly any more than stock traders do; you don't get in "at the bottom" because you don't know where the bottom is any better than anyone else - options traders or otherwise. This is that fantasy world I was talking about - and it smells of a desperate need to prove that magical stock-picking voodoo somehow happens if you only stick with stocks.

It's bullshit. Different people have different levels of skill in figuring out which way the price of a given stock is going to move - but whether they express that view via stocks or via options is irrelevant.

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.

<shrug> I wasn't supporting those exact semantics, but I don't think it calls the OP's honesty into question. Precision of expression, possibly. Over-excitement over something with a positive return that he wanted to share with others - which I think is quite laudable, by the way - just as probably. But honesty? That's a bit much.

I don’t know where you got that from.

The explicit strawmanning of options traders as being so stupid as to buy $20 stocks at $40, etc. He pretends that options traders hold an idiotic view on the market, then beats his chest about how much better his stock picking voodoo is. Clue: if your abilities are SO poor that you're proud of a comparison with a "designed to be stupid" position, then you're a laughable loser.

Different tools to accomplish same result.

And that is what my position has been all along. You don't like it? Don't do it. You want to buy and hold? More power to you; I've got nothing to say about it for you. But shitting on what other people are doing only shows you to be an incompetent prick.

Constructive criticism is always welcome. But crowing about how smart you are by claiming that other people are stupid ain't it.

 

[qlai]

All other things being equal, options traders don't take positions blindly any more than stock traders do; you don't get in "at the bottom" because you don't know where the bottom is any better than anyone else - options traders or otherwise.

I don’t get it. The Wheel requires you to sell OTM put. You choose the strike ahead of time and will take the stock at that price no matter how far the price goes. That is why you get paid the premium. I am arguing that the stock trader does not get paid but has the choice to buy at that price, lower price, or not at all. Do you not agree that there’s an opportunity cost associated with selling puts? Maybe that cost is irrelevant to you(or maybe it’s covered by the premium received), but can you at least acknowledge it? If not, what do you think the negative aspects of the wheel are?

 

[BlueWaterSailor]

I don’t get it. The Wheel requires you to sell OTM put. You choose the strike ahead of time and will take the stock at that price no matter how far the price goes. That is why you get paid the premium. I am arguing that the stock trader does not get paid but has the choice to buy at that price, lower price, or not at all. Do you not agree that there’s an opportunity cost associated with selling puts? Maybe that cost is irrelevant to you(or maybe it’s covered by the premium received), but can you at least acknowledge it? If not, what do you think the negative aspects of the wheel are?

Not specifically relevant to my main point, but - no, the wheel does not require you to sell an OTM put; I've sold ATM puts and even a couple of ITMs when entering. It all depends on what view you have on the underlying, and where you want to end up with it. I also do not have to take the stock at the initial entry strike; in fact, I just rolled two of my trades out and down for a credit (although the reasoning behind the two of them was radically different.) And no, the stock trader does not have the choice to "buy at a lower price" - we both have the same exact choices at the time of entry. You can't "buy at a lower price" once you've already bought at a higher one (and we can both average - same risk/reward profile.)

And while I do see an opportunity cost issue, it's on the stock side - not in the wheel trade. As an example, let's say XYZ is at 100, and we both decide it's a good time to enter. You buy 100 shares; I sell a put at the 95 strike and 2 weeks out for, say, $3. A week passes with little price movement; I've made roughly $150 and get out - while you're still stuck with a $10k capital reduction that earned nothing for you. That's, what, 217% annualized return? - while you made nothing. Worse yet, since your money is tied up, you're missing out on other possibilities that may come along - while I'm off into another trade. (Incidentally: I could have sold 4 more of those puts and stayed within $10k BPR - but I prefer to stay cash-covered, or within a reasonable range of that. You, even with 2x margin, can't match that.)

If the stock goes down $3 by expiration, you're out $300 - while I'm up by the same amount. If it goes up $3, you're up $300 - but I'm long out of my trade (having closed it for 50-70%) and into another one, having collected new premium. That sharp of a move up means I get to collect faster - which means I'm exposed to risk for less time.

So who's paying the opportunity cost here?

But to address your version of "opportunity cost": sure, the stock could rally $10. In that case, you made $1k to my couple of hundred. But this is countered by the (more common) times when it drops $10 - where you're out $1k while I'm only down $700. I'm also fairly certain that this kind of volatility is usually priced into the premium: I recently sold a put for $6.10 at a strike that was 4 points below spot, and it dropped just a bit under $10. Guess what? I'm still in that trade, and up money - while you would have lost a good chunk.

Overall, though - I don't need to waste my time dreaming about The One Golden Ring that I'll grab if the market "crashes up". Given how little of the time I actually end up being assigned or holding, "missing out" on a stock that goes a penny beyond my strike is really, really the last of my concerns. What I want is a steady, solid return from the market - and I'm getting that. The "yeah, but you couldamade" doesn't bother me at all - because I'm not interested in carrying the risk or the buying power reduction required to do that. It's simply not my cuppa tea, and I'm not bothered by FOMO.

 

[JSOP]

I don’t get it. The Wheel requires you to sell OTM put. You choose the strike ahead of time and will take the stock at that price no matter how far the price goes. That is why you get paid the premium. I am arguing that the stock trader does not get paid but has the choice to buy at that price, lower price, or not at all. Do you not agree that there’s an opportunity cost associated with selling puts? Maybe that cost is irrelevant to you(or maybe it’s covered by the premium received), but can you at least acknowledge it? If not, what do you think the negative aspects of the wheel are?

He's looking at totally different things and talking about totally different things. We are talking about prices that are happening in real time in comparison to the strike. But they are looking at the strikes thinking that is the future price that they can get in on or get out of the stock without realizing that they wouldn't need to because by the time when they are buying/selling, they will be looking at totally different prices that can only be better than the strikes even with the commissions and the premiums taken into account. The premiums that they've earned only compensate for IV. If they are dealing with stocks that have high IV to get more premiums chances are the price will move a lot so they will be even worse off from the strikes for getting in/out on/of the stock but if the IV is low then they won't be earning that much premiums to compensate for the opportunity loss that they are getting from the option assignment. The only time they might get a bit of an advantage is if the IV is mispriced meaning they get over-compensated in premiums for an IV that turned out to be low but these cases are more rarer than often. If this happens more often than rare, then it would be more worthwhile to just short the options without involving the underlying. The whole point of the Wheel strategy is to still profit from the underlying with premium earning as a side dish. But they don't get it if they were to profit from the underlying, it's much more price efficient to just trade the underlying.

Anyway @winstonwee will see this for himself if his aim is to profit from the underlying. @BlueWaterSailor is just a troll.

 

[tsznecki]

And while I do see an opportunity cost issue, it's on the stock side - not in the wheel trade. As an example, let's say XYZ is at 100, and we both decide it's a good time to enter. You buy 100 shares; I sell a put at the 95 strike and 2 weeks out for, say, $3. A week passes with little price movement; I've made roughly $150 and get out - while you're still stuck with a $10k capital reduction that earned nothing for you. That's, what, 217% annualized return? - while you made nothing. Worse yet, since your money is tied up, you're missing out on other possibilities that may come along - while I'm off into another trade. (Incidentally: I could have sold 4 more of those puts and stayed within $10k BPR - but I prefer to stay cash-covered, or within a reasonable range of that. You, even with 2x margin, can't match that.)

Whoa hold on here. Let's not get hyperbolic. We get your point but extrapolating annualized returns from 1 trade is ridiculous. A realistic return is something like 40-50% annualized under a bull market fully leveraged.

I'm not against selling puts, it has it's place but you are cherry picking your arguments here against @qlai

 

[qlai]

I've sold ATM puts and even a couple of ITMs when entering. It all depends on what view you have on the underlying, and where you want to end up with it. I also do not have to take the stock at the initial entry strike; in fact, I just rolled two of my trades out and down for a credit (although the reasoning behind the two of them was radically different.)

That is NOT The Wheel trade! At least not the way it’s commonly presented. Step one of the wheel is to sell OTM put at strike you “don’t mind” getting assigned at. If you wait for pull back and then sell ATM put, that is trying to swing trade with help of options.

 

[BlueWaterSailor]

Whoa hold on here. Let's not get hyperbolic. We get your point but extrapolating annualized returns from 1 trade is ridiculous. A realistic return is something like 40-50% annualized under a bull market fully leveraged.

I'm not against selling puts, it has it's place but you are cherry picking your arguments here against @qlai

Fair enough. But I'll note that I'm responding to "arguments" ranging from cherry-picked to utterly idiotic - and those aren't being called out as such by anyone but me.