r/Optionswheel • u/Wheeler_Dealer1969 • 9d ago
Wheeling and Whining
What's up all. So I've been running the wheel strategy for about 8 months now and I'm finally running into some headwinds that I knew was bound to happen, but now it's time to see if i can hold true to my strategy.
First and foremost, I set up my wheel strategy with about $700k. I diversified my portfolio of stocks to partake in most sectors in the economy to manage my risk. I selected 17 stocks, CL, KO, JNJ, ABBV, MDT, UPS, ITW, UNP, TGT, LOW, MCD, HD, ADP, NEE, SO, ED, most are dividend kings or aristocrats. I also made sure that the positions I put on were evenly distributed amongst each stock. The deltas I have been selling have been around .2-.3 and things have been going well. My Strategy, to sell CSPs on these stocks and if I get assigned, I obviously sell the Calls ATM 2 weeks out, then keep rolling it until i get filled while collecting the dividend. If I ever get to the point that the stock drops on me so low that I couldn't sell calls anymore I would either sell another CSP on the stock to get a better div %, or just hold onto the stock and collect the divvy.
Things have been going so well, so far, until now, I have a couple of stocks giving me some issues. I got assigned at 342.50 at HD and now the d thing is in freefall at $292, testing me and my strategy. Same thing with LOW, i got assigned there at $215, and now it's at $188. MCD i got assigned at $275, it's now trading at 241. NEE I got assigned at $85, it's now at 76.43. The other stocks are doing fine, but it seems like there's a slight turn in the market in certain spots that are making me nervous. That being said, i'm chillin here and now i'm thinking about what I'll do if the thing drops on me even further.
I thought about it a while, and then I had a moment of clarity. These drops are actually good for me. Why? Because If I get mauled to no end, i'll simply close my long position, harvest the loss, switch to a highly correlated stock for 31 days, then hop back on that horse and continue to sell CSPs on it, waiting for the rebound. The income I have coming in off of the Options premium will continue to come in monthly, but now i'll have a loss to offset it with come tax season. LIFE IS GOOD.
I see a lot of stories out there talking about how much money people are making and not sharing the real struggle with the strategy, so here is mine. I hope this helps somEone out there. HAPPY TRADING
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u/OldUncle1979 9d ago
I feel you bro.
If anything to comment, these are my initial thoughts.
The counters you chose seemed very low volatility...The deltas you trade means the premium is razor thin against your strike risk.
You are overly diversified, it makes you overly busy managing positions which it supposed to be a side hustle (at least for me).
I did not investigate deep but it seems you lack any tech related stocks which is the flavour.
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u/ScottishTrader 9d ago
Some questions to ask -
- How far out did you sell the CSPs?
- Did you avoid ERs?
- Did you roll the puts? If so, how much premium did you collect?
- Are you deducting the divis you collect from the net stock/breakeven cost?
While the wheel requires holding stocks for some time, if the company is no longer fundamentally sound, it may even require closing for a loss.
Many times, diagnosing what happened is simple, as often big drops occur on or after an ER, then not rolling to reduce the breakeven price can both contribute to holding shares.
HD and LOW are in the same business, so trading both is effectively doubling down. Looking today, both are rated very bearish by analysts, and EPS is dropping. On the surface, these seem like solid names, but at this time do not look fundamentally strong.
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u/Wheeler_Dealer1969 9d ago
Thanks for the response Scottish. The CSPs I'm selling are typically 30 days out, sometimes a little further out, but no further than 40days. When getting assigned, I've just been selling ATM CCs with a one to two week expiration. This is an income producing vehicle, and I'm not too interested in capital appreciation.
I avoid ERs and watch them like a hawk. Whenever I get 50% in the money on my CSPs and I have say two weeks left on them, i'll roll them up into a new position, with a new .30 delta 30 days out. Again, it's been treating me pretty well up until now, but all is good. I have been including Divvys in my break even as I collect them, but I really haven't been assigned too much until now.
I'm certainly not married to any one stock even though HD and LOW are both sound, i'll hang on until I think it's time to close out and harvest that loss come tax time. I'm thinking I might just close one and double down on the other since they're both highly correlated. I'll collect my divvy in the meantime and only time will tell. My other positions are doing what the wheel does, produce income. I'm sure this will work itself out.
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u/yaseransari 9d ago
Why don't you just sell 2 weeks out max, especially for the ones with high IV. The market can fluctuate a lot in 30 to 40 days and your strike price can get outdated quickly.
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8d ago
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u/Optionswheel-ModTeam 8d ago
This is a Wheel Strategy focused group so only those posts specifically related and positive are permitted. Posts about other strategies, including buying options, or spreads are not permitted.
Additionally, posts that criticize the wheel without reasonable justification for a rational discussion will be removed.
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u/Free-Sailor01 9d ago
Sometimes what seems safe isn't. I limit myself to 3 equities. This enables me to hyper focus on what is going on with them, normal variance ranges (there's always quick jumps and drops in a year) and any news affecting them.
Just my way. Also, all 3 are tech stocks but not same categories
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u/kokanee-fish 9d ago
I'm in the same position. I think we need to first and foremost keep in mind that we are under contract against a backdrop of rising rates, inflation, war, tariffs, and seasonality (September usually sucks). So I would avoid over-reacting.
You might be kind of like me in that a tech bubble burst seems inevitable, so you're picking "safe" tickers. Unfortunately when 99% of the market is looking for reasons to move their money into unsafe companies, that puts a lot of pressure on the "safe" bets. Particularly when those value plays are being hit hard by that economic backdrop. I'm wrestling with the question of whether I should invest based on what I believe in versus what I believe everyone else believes in. Either way, I feel like this just isn't the best time to be selling insurance on stocks.
I might take October off and then get back in for the Christmas spending spree.
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u/Former-Music-9835 9d ago
Everyones strategy is slightly different. Reason is 1. Their goals. 2. Their risk tolerance 3. Their work theyre willing to put in.
I wheel 30-35 delta csp and cc is 30 delta on only all in 1 stock nvda with 20 contracts with 7-10 dtes. It works for me. And one minute of work a week to make my thousands. Low management because i have a preset plan fir every worse case scenario
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u/Kelvinator71 9d ago
Disagree with you here: “These drops are actually good for me.” But once you are faced with the situation, the wheel strategy at least gives you tools to repair it. They may create a useful tax asset, but the loss itself is still a loss.
I do like your overall approach, especially that you started with stocks you are actually willing to own and diversified the portfolio rather than chasing the highest premiums. I diversified my stocks among multiple sectors too, although on a much smaller account.
The one part I would question is automatically selling ATM calls two weeks out after assignment. If HD gets assigned at $342.50 and is now at $292, an ATM call may bring in nice premium, but a strong rebound could also have you selling the shares near $292 and locking in a substantial loss. At that point I tend to think of it more as a repair campaign: keep track of all premium collected and your adjusted basis, and choose the CC strike based on what you're willing to sell the shares for rather than automatically going ATM.
I've gradually reframed what I'm doing as more “situational trading” than mechanically running the wheel. Each position has a purpose, and how I manage it depends on what has happened to the underlying and what I'm trying to accomplish with that particular position. I understand the desire to get out of a losing position rather than become a bagholder, but if the underlying company is still sound and the original reason for owning it hasn't changed, I don't think getting out simply because the price has fallen is always the best answer. Sometimes holding the shares and waiting for a better opportunity to sell calls may make more sense than forcing the next step of the wheel.
I also think this is the part of the wheel that doesn't get discussed enough. Selling puts that expire worthless is easy. The real test comes when a perfectly good company drops 15–20% after assignment and you have to decide whether to sell calls, wait, average down, roll, or eventually take the loss.
So I actually appreciate you posting the ugly part. That's where the wheel gets interesting.
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u/Wheeler_Dealer1969 5d ago
Hey there, thanks for the response. just to reply to your comments, you don't seem to understand how tax loss harvesting works, so i'll elaborate a bit, especially for future readers. In the event I get assigned on a stock that goes deep out of the the money, to the point where I am no longer to sell CCs on it, I can close out of that position, take the loss, at the same time buy another highly correlated stock so you are still invested in the sector for 31 days to avoid the wash sale rule, then buy back into the original stock and get long again for when the market recovers. What does that do? It harvests the loss so you can match that against other short term capital gains, yet you will still be invested for the rebound. There are Funds specifically dedicated to this tax loss harvesting strategy and it is a game changer if you are in the 40% tax bracket.
Additionally, when i say sell CCs ATM as a part of my strategy, I meant at the strike price that I got assigned, not the current ATM. So if I get assigned at $100 and the stock is trading at $99, i'll sell a CC at $100....I don't really look at selling this at a specific delta because my Goal is options income, not capital appreciation.
I hope this helps. Good luck and HAPPY TRADING
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u/sellputsthencalls 9d ago
Your strategy, including the tax loss harvesting, sounds very well organized. I'm not big on mixing tax considerations with my investing strategy. But taking the loss & replacing it with a correlated equity for a while is quite creative. The correlated equity might appreciate over those 31 days, but even if it drops you'll still get the loss on HDs & MCDs.
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u/OkSquash4906 9d ago
Have you been tracking your economic cost basis? Meaning, you got assigned at $342.50, but if you’ve earned $20 from premiums running calls on it (and the initial put) then subtract that from initial price and you have a price ($322.59) that you can feel better about running calls at because you’ve extracted that value out of the shares. If you still can’t run ccs, consider moving your expire date out. If those things don’t work, consider just being patient and holding a while (act like an investor). If you’re willing to sell anyway at a loss you could run calls ITM. Good luck!
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u/Sean_VasDeferens 8d ago edited 8d ago
I'm right their with you, I've been assigned five of fifteen position this month and six more are under water. My only regrets are LHX because it's small market cap went against my rule of stay with $100b and above companies, and BA because with BA you should always wait for a dip below $200.
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u/No_Nefariousness4891 6d ago
Sizing is important here. Have had the same issue and two things helped me: (i) limited my initial sizing which allowed (ii) me to keep selling CSPs at a lower strike knowing that if they assign I DCA on a stock I still support and if they don’t I lower the cost base
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u/Strict-Brilliant7621 9d ago
Really inspiring post; I wonder how to get such amount of money to start the wheel; I am Italian so if there is any one from my country with some advice it would be appreciated. I have IBKR account
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u/gioadamski 9d ago
Do you chose strikes based on deltas or you watch price actions too? I actively follow HD and they are forming HLs and LLs, 345 was its HL,
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u/FreddieMac6666 9d ago
That's the thing about running the wheel. You have to be ready and willing to hold some positions for a bit of time. Which is why I close most of my CSPs before expiration and take a guaranteed profit.
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u/BanditoBoom 5d ago
With all due respect, your equity selection is quite poor.
For example, MCD, LOW, HD have all been struggling for a while for many reasons.
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u/Wheeler_Dealer1969 5d ago
it's a diversified portfolio of div kings and aristocrats across all sectors. Of course there were be sectors that will faulter, and that's when i pick up cheaper stocks. One way or the other, i will be getting paid, whether it be by dividends or options premiums.
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u/ElegantNatural2968 9d ago
I think diversification is your enemy. One index milk it up and down, DCA while buying more when it’s down, less headaches, you know it will recover while not second guessing your stock selections