The WHEEL Options Strategy - Passive Monthly Income!

In today's video we are learning how to trade options using the wheel strategy. This is a simple options strategy that will allow you to collect passive income by selling covered calls and cash secured puts. You can very easily make an extra 15-20% return on your portfolio just selling these options monthly with a low risk approach. #Investing #Stocks #Options

The FIRST thing we need to understand about options is that there are 2 sides to option trading. You can either be a buyer of options or you can be a seller of options. If you are a buyer of options you are buying option contracts and hoping that the price of your contract goes up. This is usually a very risky trade because you need to be right not only on the direction of the stock movement but also you need to be correct on what price the stock will reach as well as when the stock will reach that price - and if you are not correct in all those you will essentially lose ALL your money that you invested. Now on the other hand, you have option sellers which take the opposite side of that trade- when selling options you are collecting a premium paid to you by the option buyer and you win the trade if the option buyer doesn’t get all those factors we just mentioned correct - so the chances are way in your favor for being on the selling option side. Now for this high probability of success you are taking on some obligations. When selling calls you are taking on the obligation that if the stock reaches the strike price then you will need to sell shares of the company at that price. When selling puts, if the stock reaches the strike price then you will be obligated to buy shares of the particular company at the strike price. Your goal when selling options is to collect the premium, and then hope that the stock does NOT reach the strike price by the expiration date. If the stock does not reach the strike price then the OPTION CONTRACT that you sold will lose value.

The SECOND thing we need to understand is how to protect ourselves from these obligations that all options sellers have - either having to buy shares or sell shares at a given strike price. You see these obligations can make the trade VERY risky if we don’t fully understand what we need - and that is collateral. We need collateral whenever we sell options. Anyone telling you that you can sell options naked, as in without collateral, isn’t doing you any favors because this is a sure fire way to blow up your account and even end up owing more money than you have - so we don’t want that happening - so pay attention. There are two forms of collateral that you can have. When you sell call options then your obligation is to sell shares at the strike price if the strike price is reached so the collateral that we will need for selling calls is going to be SHARES in the company. When selling PUTS, your obligation is that you will be forced to buy shares of the company at a given strike price if the strike price is reached. For this we need collateral in the form of CASH. You will need to have enough cash in your trading account to be able to BUY shares of the company - again, 100 shares for each contract sold. This leads us to the terms we should be using when selling options - Covered Calls and Cash Secured Puts. Your stock is covering your position when selling calls and you cash is securing your position when selling puts.

Now before putting all the pieces of the wheel strategy together we need to understand the third and probably most important factor of being consistently profitable when selling options and that is your probability of success - (WATCH VIDEO FOR FULL BREAKDOWN)

I am not a financial advisor - none of the above video is meant to be taken as investment advice. I am just showcasing MY own strategy and my investments should not be tried and duplicated based solely off the information in this video for risk of losing money.

[ReneLara]

I just sold a property in Portland and I'm thinking of putting the cash in stocks, I know everyone is saying it's ripe enough, but Is this a good time to buy stocks? How long until a full recovery? How are other people in the same market raking in over $200k gains with months, I'm really just confused at this point.

[RandyLy]

I'm so glad I learned this strategy a couple of months ago. The good thing is that I use the wheel strategy on ETFs like SPY and IVV, so I know the broad market will be good in the long run. The bad thing is short-term when the company/ETFs keeps going down past your strike price. It's down and selling covered calls aren't as profitable.

[winstondavenport]

Alex, thanks for everything! One aspect I’m unclear on is closing positions early. While I understand the mechanics of how to do it, how do you know when and why to close early, as opposed to just letting an option expire? For instance, if I do a LEAP, what’s the best time in the next year to close the position early and start over again?

[michaelcampion]

My ultimate goal is to do the wheel strategy on SPY. Gotta get a 40k portfolio first lol

[cbow]

This is a great video (like all your videos) and just affirms the strategy I've evolved into the first time I got assigned shares after the stock went below my strike price. But what I've been doing now is rotating my contracts. I don't know what the term is but basically it's selling (1) contract at say 2 weeks expiration. Then selling another at 3 weeks, and another at 4 weeks. These cycle through every week so I just sell another 4 week contract when they are close to expiration. If I get assigned, it's just one week at a time and then I start selling calls the same way.

[bellamybomb]

thanks for this simple explanation Alex it's much appreciated! been wanting to get into options trading for some time now

[confusedinvestor]

Question for you and maybe a new video. What are the pros & cons of using the Wheel with a strike price just below (sell put) the actual price. And then the opposite once assigned. You will get assigned ALOT but if you want the stock what's the downside? Using QQQ on a daily trade option. Thanks

[hamilton]

Thank you for another great video! Love your channel and am learning so much.

[dtitan]

can you do a video on managing or rolling call options if you really don't want to get assigned?

[PhilneyeOfTheClient]

The other risk to the Wheel is that after you’ve sold your put, the collateral that you had for the lower strike price could be so far exceeded if the stock just breaks out bullish and you NEVER get assigned. You wouldn’t have enough collateral to sell any more valuable puts since the underlying price is so much higher now effectively stopping the Wheel from turning. I think the only way to counter this is by buying a call for the same time period to ensure your collateral grows with the bullish market so you can always afford to sell cash secured puts that are actually valuable.

[Tradelikeace]

Love the wheel strategy and spreads those are my top 2

[peggysayo]

Oh my goodness!! I understand this so well now.. thank you so so much!!!! This is my year for sure to make money

[Abdolreza.Sadreddini]

Dear Pandrea,
I have a big concern here that you may help me out with.
If on the wheel system, Let's assume that I set a short put on AAPL at strike $150 and receive $12 as a premium per share for 35 days away. The price dropped and I get exercise at $120; I knew the BE would be $138, but If I set a covered call below $150 (let's assume 135 and received a $5 premium )and the price goes up and I get assigned at 145 or even higher than 150. ( the main concern is here ) Are the "WASH SALE" Rules going to apply to my transaction due to purchasing the asset at $150 and giving it away at $135, if repurchasing directly or setting another short put under $150 in 30 days before and after closing the original transaction window?
is that correct?
they don't consider the premium you received and look at the whole project that you earn money. Hope I'm wrong and you educate me, please.

[jpperi]

Very well explained, I have watched it a few times and enjoyed this as a noob!

[simplylaura]

Made my first sell call today ahhhh lol thanks for the information you provide for us.

[grantleysnipes]

So I'm going to start selling CSP's...I'm wondering, what's the best way to spend the premiums i get...On a different stock I like? On the underlying? Towards another CSP? Any advice for an options noob (me) would be appreciated.

[SwoffBass]

Best overview vid of this strategy I’ve seen. 👍🏼

[bladeborge]

Have a question about premiums. Let’s say you receive a $500 premium. You then use $250 to buy to close the contract. Come tax time, you’ll be taxed for $500 or $250?

[aarongarcia]

I appreciate your videos!! From your videos to reading a book on options..I'm finally getting it and making money now.

[purepositivity]

I sold cash secured put LCID $45 strike a few months ago when it was around $50s, i kept rolling over for nice premiums until the price started to go down. But i kept thinking it was gonna go up after a while, but instead it kept going down until now it is down to $22-23. My current expiration date is 3/18. Should i let it expire and get assigned the shares at a loss of $23 per share, then just turn around and sell covered calls on it until it goes back up to $45 my cost basis? I figure covered call premiums are much higher than cash secured puts, right? Thanks for your input. I would appreciate  it.