How to Trade the Wheel Strategy

About this Video

• Video Title: How to Trade the Wheel Strategy
• Channel: InTheMoney
• Speakers: One speaker (name not provided in transcript)
• Duration: 00:28:33

Introduction

This video provides a step-by-step guide on how to execute the wheel strategy for options trading. The speaker emphasizes the importance of understanding covered calls, cash-secured puts, and rolling positions before attempting this strategy. The video aims to break down the complexities of the wheel strategy into manageable steps, ultimately helping viewers generate income through options trading.

Key Takeaways

1. Prerequisites: Before trading the wheel strategy, you must understand covered calls, cash-secured puts, and how to roll positions. Resources for these concepts are linked in the video description.
2. The Wheel Strategy Goal: The primary goal is to combine the income-generating aspects of covered calls and cash-secured puts to maximize profits.
3. Step-by-Step Execution: The video details six steps: (1) Sell a cash-secured put (out-of-the-money, with ~70% probability of staying out of the money, 30-45 days to expiration); (2) Avoid assignment and roll the position if necessary; (3) Get assigned (if the put goes in the money); (4) Sell a covered call above the cost basis; (5) Avoid assignment and roll the covered call if needed; (6) Get assigned on the covered call, selling the shares. The entire cycle then repeats from step one.
4. Cost Basis Management: The video stresses the importance of tracking your cost basis, which represents the actual cost of the shares acquired through assignment, adjusted for credits received from selling options. Selling covered calls above your cost basis is crucial to avoid losses.
5. Free Spreadsheet: A free spreadsheet is provided to help track credits, debits, adjusted cost basis, and profit/loss for the wheel strategy.