The 'Wheel' Options Strategy - A Step By Step Walkthrough Of This Powerful Proven Trading Strategies

The Wheel Options Strategy - Proven Trading Strategies

This strategy is like “getting paid while you wait to buy a stock”. This is also one of the strategies known to be used by Warren Buffett.

This strategy is used on a stock that you're bullish on. It is used to profit on the downward movement of a stock, as the stock approaches your entry point.

For instance, let’s say that you’re wanting to buy shares of a particular stock.
However, this stock is currently trading much higher than your entry point.
Typically you would wait until the stock price moves lower before loading up on shares.

For this example, we’re going to use the stock ticker SQ. In this scenario, SQ is currently trading at $121.5 and you want to purchase the stock when it hits $100.

You’re bullish on this stock and you expect the price to go up, but you’re looking for the right entry point.

Because you want to buy this stock at $100, you sell a put option contract at the $100 strike price and receive a credit of $3.50, or $350. In this example, we execute the trade and the margin required for this position is only $1,000. Without a margin, the cost would be $10,000.

If the put option contract expires and the strike price is still above $100, you get to keep the $350. This would be a return of 3.5% in 35 days, which is the length of the contract expiration.

The stock is STILL above your entry point, but now you've earned 3.5%

Let’s say you repeat the process again, and you sell another put option contract at the $100 strike price. BUT the strike falls below $100 at expiration. If the strike price fell to $90 at expiration. You would be assigned 100 shares of SQ stock at $100 each.

Since the strike price is currently at $90, and you purchased the shares at $100, there is an unrealized loss of $1,000.

However, In this same transaction, you also made $350 in premium. Because you're longterm bullish on these shares, you do not sell them at $90 so there would be no loss realized. If you chose to sell them at $90, there would be a loss of $650. ($1,000-$350=$650)

Since you're the proud owner of SQ shares that you've purchased for $100, you can now sell call options against them!

Let’s say that you sell a $110 call option for 35 days out, with an expiration date of SEP 18. The premium received for selling this call option contract is $500.

As the expiration date approaches, the strike price moves down to $80. This would be an unrealized loss of $2,000 in the values of the shares, but you still earned a $500 premium. Because you're long-term bullish on these shares, you do not sell them. There is no realized loss, and you earned $500 in premium.

Up to this point, you were able to earn more than an 8.5% return, AND you purchased you still own the stock. If the stock trades sideways, and you still a call option contract, you STILL win with this strategy. The stock didn't increase in value, but you earned premium by selling call options.

If you sold a $110 call option, and the strike price moved up to $120, you earn $1,000 from the shares and the premium from the option contract.

Then you start the cycle all over again, because "the wagon wheel keeps turning"

Key Points:
1.) A powerful strategy that can deliver 30% per year, rather "safely". In this example, we earned 8.5% in 70 days which is more than 43% per year.
2.) It's important you choose a stock that is trending positive.

=============================================================================================
================================================================================
tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with Rockwell Trading Services, LLC whereby tastyworks pays compensation to Rockwell Trading Services, LLC to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Rockwell Trading Services, LLC by tastyworks and/or any of its affiliated companies. Neither tastyworks nor any of its affiliated companies is responsible for the privacy practices of Rockwell Trading Services, LLC or this website. tastyworks does not warrant the accuracy or content of the products or services offered by Rockwell Trading Services, LLC or this website. Rockwell Trading Services, LLC is independent and is not an affiliate of tastyworks.

[ivanxyz]

Good video. I have been trading the wheel strategy for a while now. It is a money faucet. Stocks and options together make the best business model. No tenants or employees to worry about.

[tyeshi]

I am so grateful for all the videos related to trading. I used to pay $3000 in rent for 1 bedroom apt here in nyc. I showed the trading videos to my landlord and he has now lost all his money, had to sell his building and his wife gave him a divorce. But I am saving $1500 every month in rent as he is my room mate now. I am really happy and grateful for saving $1500 every month.

[ers]

Your style of teaching is exactly the way I like to be taught! Excellent work Markus, keep it up!

[grahamgraham]

Finally a teacher that anticipates the audiences questions and explains everything clearly using visual, audio and mental stimulation. I'm learning faster from Markus than any other teacher. Thank you!

[richg]

I've been doing this on my own for over a year without realizing I was "wheeling". Now that I'm retired I've replaced my previous income through this strategy. It is VERY IMPORTANT to choose good stocks.

[ManicTulip]

This is the most comprehensive, entertaining, and simplest way to understand options. I have my series 7 and struggled to understand options for the longest time.

Thank you!

[nupid]

Good review. I have been using this strategy on an “investment” which I should have cut. It works. Also, my six year old really enjoyed this video, he watched the whole thing with me and commented on the profit amount and was asking me questions about options. I was pleased and surprised by his interest.

[JK-vbps]

the wheel strategy will be hard to execute if the underlying drops significantly because the least you should sell the covered call is at the price that you bought the underlying at.

[ericm]

The most beautiful improper english ive ever listened too. Thanks for the help brother.

[kiwilimew]

Just wanted to say I agree with others that your way of teaching is awesome!!! I feel like I’m learning so much!!!

[bowserwowser]

Finally! someone I can understand! Observational learning is the way I absorb (and hopefully retain) knowledge quickly. You're a godsend to all the new and aspiring investors out there. Keep it up!

[hooktonfonniks]

I've been doing this without knowing it has a name! Once I learned about calls and puts, I decided this is how I wanted to use the options.

[lindsayjohnston]

I've watched a few of these instructional videos on puts and calls this is the only one that explains it so I actually understand how it works sounds like a great strategy with little risk

[jonathanchesson]

I really appreciate your demeanor and clear explanations. It's clear you love what you do, and I've learned a lot from your channel

[bernardyeo]

Markus is an excellent teacher. He is very systematic. He makes a difficult subject so easy to understand. Thank you Markus.

[lucaecari]

Well explained, although since we are speaking plain vanilla here it would have been useful to mention that if you’re assigned the 90 C you need to have 9’000$ in your account so you are effectively -9k$ in your cash position.

[Arkstellar]

This is one of the most understandable, digestible expansions I've seen. Thanks.

[Jeffrey-]

Man, I keep stumbling back on these and learn so much.

[socawarrior]

I’ve been trying to learn this strategy from the trading with Henry channel and they guy makes it so complicated but thanks for this simple explanation

[proudvietvet]

I have been trading for close to 15 years now. The Wheel Strategy is the best one so far.

Thank you Markus for a great video!

My Son (44 y/o) clued me into this strategy back in early December 2020 and I have yet to lose a penny in the market. This video reinforces everything I have been shown and tried!