Wheel strategy un hedged

wxytrader said:
Ok here the results if you ran the wheel strategy starting Dec.30 2022 - Dec.22 2023 selling 1 contract OTM weekly versus daily, taking all assignments.

Weekly results:

Realized losses = $-3257
Premium collected: $11,150
Net profit: $7893
Monthly income: $614.38
Return on capital: 43%


Daily results:

Realized losses = $-1127
Premium collected: $16,135.50
Net profit: $11,102.17
Monthly income: $1,250.70
Return on capital: 82%

Doing daily you get higher premium due to higher IV (31.94/23.84% versus 21.22/17.60%) on 0 dte prices, and you get less slippage on realized losses. With either strategy, PUT protection is not necessary...and its possible detriment to the position out weighs its benefit.


If we compare this to not taking assignment and closing the put contract for a loss:

Weekly

Realized losses: $-4,339.00
Total premium: $3582
Net profit: $-757


Daily

Realized losses: $-5,117.00
Total premium: $7200
Net profit: $2083


So the results are pretty clear that options should only be sold if you can afford to take assignment, otherwise over time the losses will insidiously negate any gains. This holds true for vertical spreads and probably every other strategy under the sun. Essentially, every time you close a short option to cap losses you are in fact only locking in absolute future losses should you continue the futile endeavor. You are incrementally selling off a (synthetic) stock position for a loss.
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Ok so turns out the above results are unsustainable since the system breaks down if you go out far enough. (D was correct)
So here are the new results I get with hedging if I started the wheel strategy on DEC30 2022 ending DEC27 2023:

Selling 1 weekly put 1 OTM taking all assignments and selling 1 weekly OTM call.

Total Premium: $11,399.00
Short (RWM) position close: -$2,565.79
Net Premium: $8,833.21
Fees: -$429.00
Net Income: $8,404.21
Monthly income: $690.76

This does not include double dipping (selling a put when selling a call).
 
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wxytrader said:
Ok so turns out the above results are unsustainable since the system breaks down if you go out far enough. (D was correct)
So here are the new results I get with hedging if I started the wheel strategy on DEC30 2022 ending DEC27 2023:

Selling 1 weekly put 1 OTM taking all assignments and selling 1 weekly OTM call.

Total Premium: $11,399.00
Short (RWM) position close: -$2,565.79
Net Premium: $8,833.21
Fees: -$429.00
Net Income: $8,404.21
Monthly income: $690.76

This does not include double dipping (selling a put when selling a call).
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After plugging in all the numbers for last year, it looks like running the wheel daily would have returned well for IWM with RWM as a hedge, if you ignored the break evens.
 
wxytrader said:
After plugging in all the numbers for last year, it looks like running the wheel daily would have returned well for IWM with RWM as a hedge, if you ignored the break evens.
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Obviously, the shorter your duration the more you get premium per unit of time basis but the more you need margin to keep averaging down.

Don't forget that 1 ES is 230k usd notional.

How much money do you need in your account to keep the wheel spinning? Cause you can't close in between when you're in a loss.

And btw, how much does risk free depo pay today for 1 year if you depo'd that 230k? More than your PnL from your wheel strategy. So, why all the hassle in the first place?
 
So while researching various growth dividends, I stumbled across a new firm that is basically employing a version of my Hulk strategy, which gives it credence, but it took them a team of 20 professionals to discover it...I did it using a simple spreadsheet, while binge watching youtube. :)

destriero said:
I ignore anything longer than 20 words.
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Slow Learning Elf said:
Mkay,
(A) you do understand that covered call and short put are both synthetic puts? So you only make money if the market is going up, by very fucking definition of your positions

(B) the gist of the strategy is that you are long underlying and short vol. Granted, this year was a great year for vol sellers of any shape (the trajectory of implied vol and correlation shows it so well). However, in a year when vol actually outperformed, you’ll get dinged big time. What do you think happens when you actually take assignment on your puts 20% below the strike? Or if you holding long stock against your calls and the stock dumps 50% - you think a couple of percent you took as call premium is gonna help you?

(C) you might be a smart dude, but the markets attract a lot of very smart people from all walks of life. Because of that, it’s always worth thinking “why does this opportunity exist and whose lunch am I eating?” Could you answer this question?
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Slow Learning Elf said:
In a wheel, are long the stock and short the call (ie short a synthetic put) or flat the stock and short a put. So you are always losing money when the underlying is going down and don’t make any money (beyond the premium) when underlying is moving up. Feels a little like a missionary position, doesn’t it?
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qlai said:
I guess that's the answer, but if you are selling calls below your average price, then there is a chance you will have to take losses on your calls (or realize your loss on the shares).
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Premiums will easily compensate for any drawdowns according to my spreadsheet using historical data.

tsfx said:
Selling opt's give you premium in exchange for volatiltity risk. No matter how you think of it, there is no extra alpha in it.
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Not if the strategy is done in the conventional way.
 
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taowave said:
And what happens when the stock is down 20 percent??

Which crap call do you sell and how far out??

And what edge do you have ?? Thats the best trade you can find??
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"Great spirits have always encountered violent opposition from mediocre minds."
 
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