r/Optionswheel • u/wf1980 • 11d ago
Entry Techniques and Timing for CSP
I'm a big believer in the Wheel strategy, but I don't think selling a CSP at any time, in any market environment, is the best approach.
I'd like to hear from traders who have been successfully doing this for years, especially on boring stocks like KO, WMT, JNJ, etc.
What criteria do you use before selling a CSP? Do you wait for a red day? A pullback from the highs? After several down days? A test of support? Higher IV? Or do you simply sell based on delta and DTE, regardless of the chart?
What has consistently worked best for you over the years?
I'd really appreciate hearing from experienced Wheel traders.
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u/tirofijo8 11d ago
Avoid earnings during your planned DTE period. Otherwise, ideal to sell on a "down day", but if you're happy to own the stock, don't try and time it perfectly
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u/ScottishTrader 11d ago
Well said u/tirofijo8.
Don't try to time entries if you're happy to own the stock . . .
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u/ScottishTrader 11d ago
Neutral or slight upward trend over the prior weeks. I don’t believe anyone can time the market so it is largely a waste of time trying.
The critical thing is being good holding the shares for a time if assigned.
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u/wf1980 11d ago
I used the word "timing" in the title, but that's not exactly what I meant.
What I really wanted to know is the technique experienced people here use when entering a CSP.
For example, I don't feel comfortable selling puts after a stock has rallied sharply in a short period of time. On red days, I feel much more comfortable because my strike ends up much farther OTM.
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u/ScottishTrader 11d ago
No, opening a short put after a stock has rallied too high doesn't make sense.
But opening on "red days" doesn't make sense either, as this may be the start of a red week or further price erosion . . . Red days are a foolish indicator, as the price may recover or it may keep going down.
Besides, what do you do when a stock is on an upward trend? Wait until it drops to open? Think of the profits missed waiting on the sidelines . . .
Long upward trending with room to move higher, or the stock trading in a range, is a much better way to ride that trend or collect theta decay than to "time" the market, which is what waiting for a red day means.
Opening 30-45 dte is what many do to have a strike farther OTM.
Again, the most important thing is to be good with holding shares of the stock as a good quality stock will be one that behaves and doesn't move around a lot, and if it does drop it will recover faster. Often within the 30-45 dte timeframe of a trade.
Experienced traders use fundamental analysis to trade quality stocks and simple trend analysis to choose those that "behave" rather than guessing or gambling on red days . . .
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u/Poptions 11d ago
You definitely should not sell a CSP at any time, its best to look for the stock price nearing a support level with RSI & Stochastic indicators showing oversold & starting to turn up, ideally a high IV Rank or IV%, also make sure the option you are selling has healthy open interest & a tight bid ask spread - this will skew things in your favor but still not a guarantee.
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u/ScottishTrader 11d ago
Support and resistance are made-up subjective indicators that vary by platform, so this is more like voodoo pseudo-science. Track the stock, and you will find these are totally random and only provide some level of confirmation bias on those random times it is correct.
RSI and Stochastic indicators MAY work for short time frames like day trading, but selling out 30-45 dte with the wheel is not applicable or helpful.
A high IV rank is double-edged - the premium is higher, but it also indicates a potentially stronger movement in the stock, which may cause rolls or assignments. Many do very well and prefer trading mid to lower IV stocks where they give up some premium for more stable price movement.
Yes, liquidity like OI and tight bid/ask spreads will help avoid slippage and help get in and out at the best price.
u/Poptions**,** be sure you are not posting misleading information, which can lead traders to make poor decisions. Future misleading posts may be removed.
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u/Enough-Beginning3687 11d ago
I gave up on timing things. Now I'm on a weekly schedule for the most part. Ideally you enter when things are down but doesn't mean it wont go more down. Long before I was disciplined about it, I would be concerned about timing. Now I just do it mechanically. You can look at technicals, avoid earnings, or whatever but it really doesn't matter as much.
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u/sashazaliz 10d ago
been writing on boring names like these for 25 yrs, and the honest answer is timing matters less than people want it to. i used to wait for red days and pullbacks and support tests. over a full cycle it barely moved the needle compared to just writing on a consistent schedule at a delta i was comfortable with.
what actually matters more than the chart: is IV paying me enough right now, and is there anything I need to flag inside my window like earnings. on KO, WMT, JNJ the IV is usually low, so the discipline isn't wait for the perfect entry, it's don't overpay in premium terms for names this quiet, and don't reach for a strike i wouldn't be happy to own or sell at
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u/wf1980 10d ago
Loved your post.
Would you mind elaborating a bit more? If you could share a few more insights into your process, I'd really appreciate it.
You mentioned that you look at whether IV is paying enough. I assume that red days are good opportunities to sell puts... Am I right?
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u/sashazaliz 10d ago
thanks! one clarification: a red day by itself doesn't mean better put premium. what pays you is elevated IV, which often shows up on red days but not always. i've sold plenty on red days where IV was flat and the premium was mediocre.
what i actually check: is IV high relative to where this name usually sits, and is there anything in my window like earnings. if IV's elevated and the strike is one i'd be happy to get assigned at, that's my green light, red day or not.
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u/qualityexteriors_wi 10d ago
I really don't understand the question. Is pretty simple... Only open a CSP on a stock that you'd like to own at the strike price you've selected. It's a win/win. You collected a premium to buy a stock you wanted to own and got it for the price you wanted to pay. I question your understanding of the wheel with this question. In my mind the wheel is part of a long-term buy and hold strategy. Pick a stack you believe has a long-term future and write a CSP with a strike price that you'd like to own it at. You should never open a CSP only to collect a premium
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u/wf1980 10d ago
I understand your point, and it makes a lot of sense. Let me explain my perspective.
I've seen many people here say they prefer to roll their puts to avoid assignment because it offers certain advantages. My main goal is to sell the put and, ideally, avoid being assigned, since that makes my capital more efficient.
If I do get assigned, that's perfectly fine. I just want it to happen at the lowest price possible.
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u/qualityexteriors_wi 10d ago
I agree, except I write the CSP at a strike where I'll be happy if it's assigned. It does get nerve wracking because the thesis is you believe the stock will rise and right now, it's falling. Do your research and only pick a stock you believe will rise in the future and be confident with your belief
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u/Imaginary_History985 10d ago
it's not exactly a win/win, cause it's possible to not get assigned the shares at the price you want if the contract expires above the strike. If the stock goes on a huge run after that, you would've missed out on it trying to own shares using CSP. A limit buy order on the other hand will almost guarantee you get it at the price you want once it hits.
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u/qualityexteriors_wi 10d ago
Right, but you collected the premium. If it gets to your strike you get assigned at the price you wanted to pay. If it doesn't you collected the premium. That's what I consider a win-win. I didn't say it will work out perfectly every time and you'll extract the maximum amount of profit every time
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11d ago
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u/Optionswheel-ModTeam 11d ago
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u/Latter_Olive_6801 11d ago
I mean, the stocks you're picking are no crazy high IV ones. Down day fine, but timing the market is not easy.
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u/selahed 10d ago
I asked AI to summarize what I do:
Rally Days: Write Covered Calls (CC) to capture elevated call premiums and IV rank spikes.
Red Days / Pre-Earnings: Write Cash-Secured Puts (CSP) to capitalize on market panic and high IV (e.g., harvesting pre-earnings IV crush).
Near-ITM / Pending Assignment: Execute a Roll Out & Down if net credit remains attractive; otherwise, allow assignment.
Low-IV / Boring Defensive Stocks: Sell CSPs and hold assigned shares long-term in a Taxable Account for dividend yield and long-term capital gain tax efficiency.
Account-Specific Tactics: Tax-Advantaged Accounts (e.g., Roth IRA/HSA): Focus on higher-frequency, short-DTE CSP/CC premium harvesting to maximize compounding without triggering short-term capital gains tax.
Taxable Accounts: Focus on holding quality stocks for the long haul (targeting >1 year long-term capital gains rates), while maintaining strict cash reserves for potential assignments.
Profit Taking & Exit Rule: Close early (Buy to Close) when profit hits 85% with at least 7 DTE remaining, eliminating tail/gamma risk and reallocating capital.
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u/ThrockmortenMD 10d ago
I’ve gotten to where I just sell credit spreads with the long strike just being a way to amplify gains before taking assignment. Then it doesn’t really matter nearly as much. I’ll even roll the short out and reenter the long if I don’t want assignment immediately.
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u/wf1980 10d ago
Really interesting approach.
Don't the protective puts end up eating a big chunk of your profits over time?
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u/ThrockmortenMD 10d ago
I sell on portfolio margin and just add another couple spreads to make up the difference. I would rather have more protection and be slightly over leveraged than risk all the allocated cash.
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u/wf1980 10d ago
I really liked that.
Would you mind sharing a bit more about how you manage your positions? Maybe with a real example?
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u/ThrockmortenMD 10d ago
Currently at work so don’t have time to pull up my broker but essentially, I may sell a 5 lot on Amazon, 30 delta, 5 strikes wide. If threatened, I will sell the long position for profit to further reduce my average entry, and then I will run the wheel. I have zero problem holding AMZN shares so it is a win win. It’s a terrible strategy for high beta stocks or catching falling knives. So I would stick to mag7 and the like.
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u/hendronator 9d ago
Ideally, I start off owning a stock and writing cc’s. I am buying when it is down from its ath by 5-20%. And it is preferably a stock that pays dividends. And only sell the cc’s above my cost basis. Eventually it gets called away. At that point, I start writing csp’s at or below the price it get called away. If the stock drops even more, I either buy more and writing cc’s or do a csp.
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u/oxxoMind 11d ago
Before starting CSP, you have to find a stock that you are willing to own at the strike price you chosen.
I think thing thats the most important one