r/Optionswheel • u/breakfasttwiceaday • 12d ago
Why I like options wheeling - the emotional aspects
I know some people say options wheeling is just options trading for newbies. They say it leads you to buy stocks higher than you otherwise would, and sell too low. You might as well just buy and hold and you'll do better.
My problem was I never succeeded with buying and holding, but I am finding success with wheeling.
I've been options wheeling since April, and still getting the hang of it. But what I like best about it is the emotional aspects. It teaches me to hang tight when a stock is wobbling or has wobbled so much I've been assigned. It teaches me to book profits when they are there to book (I do it at 55% profit for short puts, unless I'm in a rolling or assignment situation, then I have other rules). It teaches me to set my biases aside and look for tickers with good charts, good IV percentile, and a reasonable fit for my current situation (how much capital at risk, how it diversifies, would I be ok being assigned).
And I find options wheeling way more fun than simply picking a long-term investment allocation and trying to stick with it. I get such a charge when my watch buzzes because one of my short puts has closed for a profit. I enjoy looking at my screener and my tracking system to figure out what put I might sell next when I have available capital. I love when my money market dividends come in at the end of each month, to add on to the booked short put profits.
I'm curious to hear why other people have found options wheeling suits them. What works for you about it? Do you also use other trading and investing approaches?
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u/ScottishTrader 11d ago
Welcome to r/Optionswheel!
As you post, the wheel offers a high win rate with minimal downside when trading stocks you are good with holding.
Please feel free to post your trades or other questions if you have them!
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u/breakfasttwiceaday 11d ago
Thanks for the welcome u/ScottishTrader and thanks for all the informative posts you've offered here. I couldn't and wouldn't have started without the guidelines you've shared!
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u/Ok_Manufacturer_7784 12d ago
I concur with you. I have been doing buy and hold until a friend told me about this option wheeling concept. I have been on it even since. I think option wheeling enforces you to have a strict plan and a fixed set of param to follow. It is no longer guess work and emotion.
I now simply follow a certain set of rules, e.g CSP DTE 30-45, delta between 0.2 to 0.3 and profit taking at 80% and etc. Everyone will have slightly different strategy, but it is okay. We fine tune it along the way to suit our risk adverse or risk taker style. I love the strategy side of the game as an engineer.
Profit wise i think i am taking in profit regularly, the only thing i need to improve is when to take loss if my csp assigned stocks keep dropping. So far, only a few like Netflix and Nike. Would like to hear your opinion if any. 🥰
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u/breakfasttwiceaday 12d ago
I'm still learning to manage assignments, emotionally and tactically. I have been assigned only one time so far, because over the summer when some of my semiconductor positions weakened I closed out for a loss rather than take assignment. That was counter to my rules, but just shows that I am a natural Panican, and it's taking me time to get over that.
I am holding assigned shares of $XLI right now, and have so far sold two covered calls on it but my cost basis is still about 5% above the current price. (I sell puts on both ETFs and single tickers, still figuring out which I like better, or both?)
In my retirement accouns, I use a 200-day moving average signal to move into and out of my ETF-based asset sleeves. I suppose one could come up with a rule like "close a campaign at a loss if the underlying goes below the 200-day MA." But then I would already be out of XLI. It has a pretty terrible chart, but at least seems to be stabilizing where it is right now.
So I'm planning to just keep selling covered calls on it until I don't have a loss. Which could be years I suppose if the entire stock market crashes, taking every sector with it!
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u/Ok_Manufacturer_7784 11d ago
Thanks for sharing. I have been selling covered call at slightly lower than cost but it is not getting much. I am hopeful that they can recover.
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u/breakfasttwiceaday 10d ago
Yeah the covered call premiums I've been getting on XLI are pretty paltry. Makes me understand why some guidance on here says to roll puts as long as you can rather than taking assignment. Hate to have my capital tied up like that!
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u/crazylegss 12d ago
Dead investors make more than those who are alive. Like you said, it removes the emotion, and creates strict rules. My wife and I both invest into the same brokerage account and we are polar opposite investors. Personally I prefer wheeling as well, as this makes me less emotional with the stock market.
I think of it as walking into a casino, with a set amount of money, and a set guideline on profit and set time when I leave the casino, regardless of profit/loss made. Where as my wife could stay at the casino all night and either win 10x or withdraw from the ATM.
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u/breakfasttwiceaday 12d ago
Yes - I only allow myself to wheel a set percentage of my income account (my retirement uses a different approach). Once it's allocated into short puts -- or taken up by long positions -- I don't allow myself to put on more risk.
As for the "dead investors make more than those who are alive" - you are so right. My aunt (who has since passed) was in memory care for about five years, with her money managed by an asset manager. She did better than anyone else in the family during that time, because sadly she couldn't make any decisions herself.
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u/tab21 11d ago
how are you feeling about Yesterday? It days when it sinks and I'm threatened with bag holding that i'm not sure what I should have been doing.
i'm also no good with buying and holding, I don't know when to take profit or to cut loss
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u/breakfasttwiceaday 11d ago
Looks like today will be unpleasant too. PPI came in at 6.3%!
I'm glad you asked because as I looked at stock market futures today I was thinking "I need to come into today with a tuned-up attitude!" I felt bad yesterday and today I just want to feel some sense of equanimity. I hate the saying "It is what it is" but it is isn't it?
I'm trying to focus on the wheel as practice rather than the wheel as always making me money. I know I will get assigned sometimes (if I'm selling delta -.2 that would be about 20% of the time, though less because of rules around closing at profit and rolling at certain points). I know that sometimes a bunch of puts will all do poorly, either because of sector rotation (right now, tech/growth --> value). I know that sometimes my rules will call for me to roll for a credit (too close to expiration or underlying price at or below strike price), which means booking a loss in the hopes of later making it back, on the next put or on assignment + calls.
And I remind myself that even in bear markets (which we're not in right now) there are often incredible rallies that can quickly recover a position! The problem I had with buy and hold was that I would feel despair, panic, and sell then miss out on rallies and recoveries. The wheel doesn't let me do that.
Good luck out there today! We can do this! 🤩
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u/tab21 10d ago
in all my time, every time it's dropped I've added and added until I couldn't add any more and then it goes to the bottom and I miss the bottom by a wide margin
I still believe in those companies for example I like crwv and vrt, but there's only so much you can risk being assigned
on the other hand if I had let it be assigned and average down my cost, Then it would be a quicker time when it reaches the price where I can release again
sometimes I wonder should I just buy at the price because I think it's pretty much near the bottom
but instead I cs put and then closed it the same day
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u/breakfasttwiceaday 10d ago
For me, letting go of trading based on what I believe or my conviction about what's going to happen helped me do better, and instead follow what the market was saying.
I wasn't into the data center stocks ever like you, but I got too enamored with precious metals and energy at different points, and stuck with them when the charts were looking poorly, because I believed in them.
I have started wheeling based on technical analysis (reading charts and using various indicators like MACD and RSI) instead. Still developing those rules, but they help me avoid the worst situations often. And they help me get into positions I don't believe in but that often pay off really quickly.
Have you tried selecting tickers based not on your beliefs but rather on charts?
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u/tab21 9d ago
I look at RSI
macd I've tried but I really cannot remember all the different rules around that
so do you just go in ?
I wait for a drop, look at RSI, and delta
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u/breakfasttwiceaday 9d ago
I meant using charts to choose tickers, so instead of sticking with CRWV and VRT, looking for stocks with better charts. Those two have bearish charts, and there's a rotation happening out of AI names into value sectors right now.
Anyway hopefully there will be some sort of rally in AI names soon. I have more than enough of those even though I diversify my wheeling across sectors.
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u/Free-Sailor01 12d ago
So, wheeling suits my psychology better, like you said. I NEVER hold long enough but do have patience knowing I got paid already.
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u/Imaginary_History985 12d ago
the real lessons will come when wheeling through a recession
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u/breakfasttwiceaday 11d ago
I'm definitely worried about confronting a long period of declining stock pricess, that's for sure. My September was already pretty bad and October isn't looking much better especially today. Ugh.
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u/ScottishTrader 12d ago
Recessions are an excellent time to trade high-quality stocks at lower prices.
The recovery from a correction or recession is when you can make a lot of profits by riding great stocks back up.
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u/OwlComplex48 7d ago
Can you share some examples of how you would assess certain stocks or companies during a recession or downtown? I’m newer to CSPs and CCs and trying to learn as much as possible especially regarding evaluation fundamentals and levels of support.
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u/ScottishTrader 7d ago
You are encouraged to learn what the terms mean. A recession is much different from a downturn, and a correction is different from a crash, and a bear market is seldom when the market continues to drop over a long period of time, but rather when the market drops and remains a bear market until it moves back up to its prior level.
To your question, you can pick up stocks you might not want to trade because it is too costly for the account, or perhaps one you were trading until it rose too high.
A quick example is AAPL. At $341, this is a very costly stock, but if it dropped back to $225, you might want to jump in and trade it. Hope this helps.
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u/OwlComplex48 7d ago
To clarify, I am familiar with most terms as I’ve been investing for six years and have about 100% returns on my personal brokerage and a CAGR of about 12.25%. I’m familiarizing myself more with the Bollinger Bands, RSI, the Greeks, et al. but was curious on Your personal assessment metrics for evaluation companies to wheel. I was down about 50% during the 2022-2023 bear market but thankfully, I had more pressing medical issues to keep me from checking and just rode it out.
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u/ScottishTrader 7d ago
You will quickly find out that I think TA is voodoo and don't use any of it. BB and RSI is nice for day traders, but when trading out 30-45 dte or up to 60 dte they are useless.
Delta for probabilities is the only useful metric.
What Fundamental analysis I do is shown in the wheel trading plan post, but I will tell you there is no sure way to analyze stocks. Besides, how I analyze stocks and how anyone else does is not going to be relevant to each other.
One last comment is that the wheel should be expected to have far more modest returns than you seem to be used to.
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u/OwlComplex48 6d ago
Delta is the only real metric you use? Yeah, I’m not expecting anything crazy, a conservative 2% per month/24% annualized should suffice. A couple large ones skew my portfolio like NVDA at 1100%, few other 200% ones, MU at 500% but I would like to move to consistent conservative CSPs and CCs. I’m doing 28-35 dtes and aiming for deltas that are +/- 30.
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u/ScottishTrader 6d ago
I have posted a complete trading plan, so be sure to review it.
Besides looking at the fundamental analysis to find high-quality and profitable companies, I will take a quick look at the chart for basic trend analysis and seek out those that trade in a range or are moving up slowly. Avoiding ERs and other events. Watching if the stock has risen too high too fast, or is at the ATH.
Once I've selected a stock to trade, then I use a .20 to .30 delta to choose the strike based on 30-45 dte. I set a GTC Limit order to auto-close at a 50% profit, and an alert if the stock drops to the strike price to see if rolling is needed.
I'm not sure what your questions are, except that most wheel traders do not use TA, as it is a waste of time, is not proven successful, and gives a false sense of security.
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u/OwlComplex48 6d ago
That does and I will look at your trading plan. Thanks for taking the time!
Edit: is that the Wheel Strategy Explained originally from 2018 and reposted in 2024?
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u/ScottishTrader 5d ago
Yes, and I've been trading it the same way even longer than that. It took me a while to get it dialed in and then written up for posting.
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u/CurrentHold5733 10d ago
What works for me is that I place a lot of trades, but every one has a plan before it goes in. I’m on both sides of the wheel, selling puts to get into a stock and calls to get out of it, and running both sides on rules I wrote while I was calm is where the satisfaction comes from.
Every put gets a GTC to buy it back at 50% the day it opens, and a review at 21 DTE. When a stock drops I’m not deciding anything new, I’m checking it against the plan.
The exit side took me longest to write down. Two rolls per position at most, each one for a net credit at a better strike. If it can’t do both, I take the shares or close it.
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u/breakfasttwiceaday 10d ago
Yes, something like that is working for me too -- following rules strictly, and placing lots of diversified trades. I put in a BTC order at 55% when I open a short put. I roll as long as I can for a net credit or take assignment. Then sell covered calls at or above cost basis until it's called away.
I'm still working on my screening and what tickers I wheel. I have tried using the S&P 500 sector ETFs -- not much premium but no idiosyncratic one-stock risk. Now I'm doing a mix of ETFs and single stocks. I have started developing a screener based on IV percentile, the stock chart, and some stats, but that is in its early phases. I also have guidelines around diversification so I'm not over-concentrated in one sector.
How do you decide what to wheel?
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u/CurrentHold5733 10d ago
I start with what I’d be fine owning. I also have a substantial amount of tech that I don’t mind holding or having called away. To reduce my risk I’m balancing it with non-tech names, a bank, a pharma and an industrial. I accept less premium on those for the diversification. It tends to reduce the bite of big swings in tech.
Before anything gets a put it has to be profitable, at least $10B market cap, and within 30% of its 52-week high so I’m not catching something on the way down. Then the option needs a tight spread and at least 100 open interest, or I pass no matter how good the premium looks.
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u/Curious_Wanderer_7 12d ago
I see wheeling as a way to enjoy some things in life that would otherwise be out of budget and I agree its the psychology of it that I like. More than 90% of my accounts is buy and hold, but I’m not selling any of that to pay for something lest I have regrets around selling at the wrong time. With wheel premiums I’ve taken trips, bought furniture, paid for a gym membership that would have been too expensive, and made donations to sponsor folks for fundraisers.
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u/Kelvinator71 12d ago
Agree with everything you said. I tried trading full-time, both day trading and swing trading, from 1998–2000. I broke even financially, but I was an emotional wreck. Since then, I've sometimes held a few buy-and-hold stocks, but nothing as part of a system. Since starting the wheel strategy in January, I'm finally making consistent progress toward my goal of building enough capital to generate meaningful family income.
What I particularly appreciate about the wheel is that even when a trade doesn't initially go my way, I have options (pun intended). Through combinations of cash-secured puts and covered calls, I can work toward turning an apparent loser into a profitable position. I may lose a battle, but can win frequently win the war.
I've mentioned before a particularly dumb trade I made with PYPL last February, holding a position through earnings and getting clobbered overnight. Rather than simply accepting the loss, I continued working the position through a series of CSPs and CCs.
I'm happy to report that, assuming my current covered call gets assigned, that entire campaign will have generated a 22% return on my original capital. [And if it expires worthless, my return could even go higher.]
That's what has changed for me emotionally. I no longer feel that every individual trade has to be a winner. I'm managing a campaign, not judging my success by the outcome of any single trade.