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The Wheel Strategy on Options


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The Wheel Strategy on Options

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  #11 (permalink)
 Mativen 
Los Angeles, CA/USA
 
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Where did you trade MES for only $0.52? Thank you.

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  #12 (permalink)
 Arch 
W.Coast, USA.
 
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PK007 View Post
Now that I have more data, thought it might be a good idea to populate it on a chart.

Note, in order to show monthly numbers and not to make it too complicated, I will calculate the Profit/Loss and returns at the time when the last weekly option is closed for the month. This is to avoid trying to calculate realized/unrealized numbers exactly at the end of the month.

November in this case, is only until the 16th and will change as the month progresses.

Massive Disclaimer:

Being a qualified accountant myself, I know how easy it is to make financial results look better than what they really are. In this case, a 15.8% return looks too good to be true.
You must consider the following (I touched on it in my earlier post):
1. The return is only calculated on this one trade strategy using the margin requirement of 1 contract of the MES. It is extremely unlikely that you will put all your money into this one strategy. I definitely don't recommend it.
2. The wheel strategy WILL lose money if the underlying (in this case the MES) has a significant drop, lower than the short put strike and keeps on going lower. What is likely to happen in such a scenario is that I will get assigned and might not be able to sell covered calls, with reasonable premiums, but still a good distance away from the underlying price. This has happened to me before.

One of the main reasons to record the strategy in this journal, is for me to learn. Itís more an experiment and for others to join in and make recommendations on how to manage the strategy better. When I do get assigned eventually, there are a few different variations of the strategy that might be useful to explore. So, it will be useful to have everything documented.
I'm definitely not an expert in this strategy.


Yes, huge fat tail risk here. This strategy will crash and burn in a downturn, more so with the use of excessive leverage on futures option, no less.

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  #13 (permalink)
 PK007 
South Africa
 
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SMCJB View Post
but you said...



Since you must have the cash required to buy the stock/instrument if you get assigned, shouldn't the return be calculated based upon that cash amount that you have tied up?

SMCJB,

Selling 1 naked put at about 1 STD 8 days out today will reduce the buying power by $1,030 according to Tastyworks:



Buying 1 contract at market now will reduce the buying power by $1,254:



I used the latter for the ROI calc. I'm not sure when I get assigned 1 contract, if the buying power will increase from $1,030 to $1,254. I assume that will happen.

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 PK007 
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Mativen View Post
Where did you trade MES for only $0.52? Thank you.

Mativen,

Tastyworks

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  #15 (permalink)
 PK007 
South Africa
 
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MES Trade Update:




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  #16 (permalink)
 PK007 
South Africa
 
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PK007 View Post
Mativen,



Tastyworks



Apologies Mativen. I see there is an additional $1.50 in commissions when opening a trade. I missed it since on the statement it's not shown separately per trade.
No commission on closing the trade.


Sent using the futures.io mobile app

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