What if the shares depreciate in value for more than your put and call premium? What if the share price drops below your assignment price aka purchase price, you won't be able to write the call at any higher strikes because the premium will be peanuts then you would be forced to write calls at lower strikes, lower than the purchase price then if the share price subsequently goes up, your shares will be called away at a loss.
Retired, 450k fun money, lets see what happens - SPY Options
- Thread starter Wise Old Man
- Start date
What if the shares depreciate in value for more than your put and call premium? What if the share price drops below your assignment price aka purchase price, you won't be able to write the call at any higher strikes because the premium will be peanuts then you would be forced to write calls at lower strikes, lower than the purchase price then if the share price subsequently goes up, your shares will be called away at a loss.
Then I wait it out for the market to recover... exactly the same as before I retired and I was invested in my 401k.
Rolled forward another week:
+$2100
SOLD -12 CALENDAR SPY 100 Q 31 DEC 20 (7)/24 DEC 20 (0) 365 P @1.75 LMT
Wheel strategy works best on dividend stocks. I'm actually pulling my funds together and do what the old man is doing. Get out of the losing process of trading and go all in this
This isn’t as risky as everyone is saying. Options aren’t risky if you aren’t trading on leverage.
But you will be losing money or at least earning no money in the interim. And what if the market doesn't recover ever and keeps dropping (the most drastic scenario) or take a very long time to recover? Hope it doesn't happen to you.
Merry Xmas!
Worst case scenario, I'll be sitting on the sidelines for a very long time. Hope it doesn't happen either but if it does, I'm okay with it. Merry Xmas and Happy New Year to you as well!
+$3060
SOLD -12 DIAGONAL SPY 100 (Weeklys) 8 JAN 21/31 DEC 20 368/365 PUT @2.55
+$1272
SOLD -12 DIAGONAL SPY 100 15 JAN 21/8 JAN 21 371/368 PUT @1.06
SOLD -12 DIAGONAL SPY 100 15 JAN 21/8 JAN 21 371/368 PUT @1.06
Wishing you the best of luck with this. I've been looking at doing the same starting in March / April 2021 after the sell of a business that will provide a good chunk of capital. I've been looking into doing the initial put selling in a slightly altered way of selling using a 1:2 ratio spread on the put side for the initial set up. Buying a 40 delta put with weekly exp and selling 2 30 delta puts. Limits some of the premium you can collect by just selling the put but you would have a lower entry point if you are assigned and hopefully some weeks where the ratio outperforms the naked put alone. If assigned i'm in a similar boat and wouldn't mind selling calls against a long position in SPY for months as this isn't money I will need access to for years. I respect those skilled at back-testing and data. I'm not the coding type but maybe there are places I can pay for a back test to see how this entry would perform versus the straight short put entry. Sharp minds on these boards will hopefully point out what I'm missing or the flaws in looking at a ration spread as a point of entry for the wheel rather than a straight put.
Much appreciated. Wishing you the best of luck as well!
So if I'm understanding you correctly, you're taking the premium from the cash secured 30 delta put to finance purchasing a 40 delta/30 delta put vertical so that you will make a little more on the way down? It would probably work pretty well in a choppy market but underperform in a very bullish market. To the downside, you get your entry plus a bit of profit from the put spread, but when the market continuously breaches new highs, you'll make less in premium sales.
I hope you make your own journal about this. Would love to see how your results compare to the more traditional wheel strategy.
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In other news...
+$3228
SOLD -12 DIAGONAL SPY 100 (Weeklys) 22 JAN 21/15 JAN 21 373/371 PUT @2.69