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

JSOP · Feb 23, 2021

ironchef said:
Been there done that back in 2013. Exact reasons why after six months, I stopped mechanically selling covered calls and writing cash secured puts.

On the other hand, almost any system with some up bias will work well in a bull market with stocks in a general up trend.

We shouldn't be too hard on OP, he is excited to share his winning strategy and I am thankful.

Yes we just wanted to bring to @winstonwee's attention things that we see in the wheel and caution him that the wheel is not as profitable as he thinks.

hypercube · Feb 23, 2021

JSOP said:
We are looking at different things. You are looking at things that might not be and thinking that wheel will help you to get something. I am looking at things that happened and were available seeing what could've been and seeing how wheel didn't get you the best deal. Like I said, nobody knows the future but what's important is getting the best thing, achieving the highest price efficiency among all the trading choices.

You need to read up more on the definition of opportunity cost. I have written THREE lengthy post explaining the concept and you still don't get it. I am not doing it anymore. The opportunity cost of doing that when I could be doing something else more enjoyable is just too high for me right now.

The disadvantage of the wheel strategy is not just the opportunity cost I agree. It's also the downside risk that doesn't have to be extreme but is just too large to be compensated by the income generated from option selling like today, NIO went down to $49.11 and @winstonwee is still holding it from $58.00, a loss of $1.56. And yet a put at a strike of $50 was only written for 55 cents. And if the price falls further on the expiration date and if the put is still not closed out, @winstonwee is going to get assigned another batch of NIO stocks incurring again opportunity cost, everybody's favorite concept.

I have refuted your lengthy explanations twice and you still don't get it. You don't even attempt to address any of my points. It's not so hard to understand.
If you are looking only at what will happen in, say, a month from now, then, whenever you set a limit order to buy a stock at X, you'd be better off selling a 1-month put at strike X instead. Do you agree with this statement, yes or no? Things are different if you look at the value of your account in-between, but if you ignore the risk of a margin call, then selling the put is strictly superior to buying the stock directly. If you don't get something this basic I don't know what else to say, you just refuse to reason or are incapable of basic mathematical thought.
For the last time, claiming that the wheel forces you to buy high does not make sense because the opposite occurs: when you are assigned the put, you are getting it at a lower price than was possible when you decided the underlying was a good buy.

tsznecki · Feb 23, 2021

hypercube said:
@tsznecki
Your post was removed because I reported it for your false accusation and unwarranted insults.

I should do it again but I guess it's easier simply to put idiots like you in my ignore list. Obviously you can't contribute to the discussion or give any arguments about the content of my posts.

And LOL at "calling me out". This is my only account here.

Oh hi snowflake. Can't take criticism can you? Got put down too much in your life for being a failure?

This is your 3rd post ever:
https://www.elitetrader.com/et/posts/5329090/report

Every single post after has been in this thread.

Do you really expect us on ET to believe all you were browsing the internet and all of a sudden you found ET and got so triggered you posted multiple times in a day on this particular thread?

LOL only you believe you are not a retard. We can smell your bullshit a mile away. Google Dunning Kruger. That's you.

newwurldmn · Feb 23, 2021

Jsop is a moron but you have the dumbest post in this thread.

Selling a put is not always superior to buying stock. If you don't get something this basic I don't know what else to say, you just refuse to reason or are incapable of basic mathematical thought.

hypercube said:
I have refuted your lengthy explanations twice and you still don't get it. You don't even attempt to address any of my points. It's not so hard to understand.
If you are looking only at what will happen in, say, a month from now, then, whenever you set a limit order to buy a stock at X, you'd be better off selling a 1-month put at strike X instead. Do you agree with this statement, yes or no? Things are different if you look at the value of your account in-between, but if you ignore the risk of a margin call, then selling the put is strictly superior to buying the stock directly.
If you don't get something this basic I don't know what else to say, you just refuse to reason or are incapable of basic mathematical thought.
For the last time, claiming that the wheel forces you to buy high does not make sense because the opposite occurs: when you are assigned the put, you are getting it at a lower price than was possible when you decided the underlying was a good buy.

.sigma · Feb 23, 2021

systematictrader said:
Guru slammed OPM, let him know elite trader is no isntagram,, lots of pros here

G is one of the reasons I lurk these forumz, that’s the homie

winstonwee · Feb 23, 2021

hypercube said:
Well I have also refuted your claims, for example in the post you are citing.

Besides, your "opportunity cost" analysis is totally wrong. There is an opportunity cost in buying/selling the stocks directly that you keep ignoring. You fail to realize that if today you have decided to buy a stock and you think that 40$ is a fair price, then there is an opportunity cost in setting a limit buy order at 40$, because you could instead sell a put at strike 40$. Who cares if one month later the stock drops to 20$ and you get assigned the 40$ put? It is irrelevant because, had you bought the stock at 40$ as you are proposing, you would be in a strictly worse position! You made the decision that 40$ was a good entry price, and whether the put gets assigned or not you are in a better position that if you had bought the underlying directly when you decided to do so. You are comparing the price today at 60$ with the 40$ price one month later, but this is an apples to oranges comparison as you didn't know that when you initiated the trade. And similarly, if you want to sell the stock, it is better to sell a covered call instead of setting a limit sell order.

The disadvantage of wheel-like strategies is NOT the opportunity cost you seem to think. If you are simply looking at the payoff on expiration day, these strategies are strictly superior to trading the underlying directly as you are advocating. The disadvantage is what happens between those dates; if volatility increases your NAV will go down in between, even if your trade is profitable on expiration.

yes I agree with you instead of setting a buy limit you can sell a CSP put at 40
the disadvantage is before expiration the stock dip below 40 and rebound then I wont get the shares

but hey when I am doing wheel my main objective is not to pick up the stock I hope I never had to pick up any stock and just keep pocketing the put premium I would be happy and do it all day round

winstonwee · Feb 23, 2021

JSOP said:
We are looking at different things. You are looking at things that might not be and thinking that wheel will help you to get something. I am looking at things that happened and were available seeing what could've been and seeing how wheel didn't get you the best deal. Like I said, nobody knows the future but what's important is getting the best thing, achieving the highest price efficiency among all the trading choices.

You need to read up more on the definition of opportunity cost. I have written THREE lengthy post explaining the concept and you still don't get it. I am not doing it anymore. The opportunity cost of doing that when I could be doing something else more enjoyable is just too high for me right now.

The disadvantage of the wheel strategy is not just the opportunity cost I agree. It's also the downside risk that doesn't have to be extreme but is just too large to be compensated by the income generated from option selling like today, NIO went down to $49.11 and @winstonwee is still holding it from $58.00, a loss of $1.56. And yet a put at a strike of $50 was only written for 55 cents. And if the price falls further on the expiration date and if the put is still not closed out, @winstonwee is going to get assigned another batch of NIO stocks incurring again opportunity cost, everybody's favorite concept.

you have obviously didnt know what my plan was

I have roll my nio put 50 down to 45 (was this the best choice nobody know). I roll because I change my mind, I change my mind all the time. and I get paid to change my mind for rolling it further away

to save you time and agony you can skip to the 10 mins part and watch this

now again you are using the yesterday data to see what could have been better. If I can have the benefit of hindsight I would do even better
Now back to my sell call on 22nd Feb I sell the 58 call for 3.10 (I get to keep the premium regardless of what NIO does) this is opportunity cost to make extra $3.10 (of course if I were to know NIO is going to 68 on next wednesday than I wouldnt sell the call, but I didnt have the next week price data available to me) and if NIO were to go up near 58. I could change my mind again. or I could be contented with 1 full cycle and take a break and restart another wheel.
All this sell call and sell put bring extra premium to lower my price and that is what the whole wheel is

it is not the best and not the holy grail it work on uptrend market we all know that

hypercube · Feb 23, 2021

newwurldmn said:
Jsop is a moron but you have the dumbest post in this thread.

Selling a put is not always superior to buying stock. If you don't get something this basic I don't know what else to say, you just refuse to reason or are incapable of basic mathematical thought.

It seems you can't read. I've said explicitly several times it is not always superior, including in the post you quote. It is superior if you look at the payoff on expiration day, though, which is exactly what I wrote. And JSOP's argument was bullshit.

newwurldmn · Feb 23, 2021

hypercube said:
It seems you can't read. I've said explicitly several times it is not always superior, including in the post you quote. It is superior if you look at the payoff on expiration day, though, which is exactly what I wrote. And JSOP's argument was bullshit.

that’s not true either. And a very simple example can prove it.

hypercube · Feb 23, 2021

newwurldmn said:
that’s not true either. And a very simple example can prove it.

If you have a point, just make it. I was referring to the case of putting a sell order at about the current market price on a given day (so effectively a market order), not a good-till-cancel limit order. Not as an example of how the wheel operates, but to say that if you replace your market orders with put selling and you can resist what happens before expiration, you'd be better off.
JSOP keeps referring to the case that the stock drops and you're not assigned, as if somehow having sold the first put magically hinders you from buying stock or selling yet another put at a later time.