wheel

Why I Love The Wheel Options Trading Strategy?

When it comes to trading styles and strategies, they can be grouped in so many different ways. Day trading, Swing trading, Momentum trading, Scalping, etc. To me, all of these types of trading sound hectic to me. They all require active monitoring of stock price, stock movement, stock news, etc etc etc. I have personally tried a few of these and they have never worked out for me. Don’t get me wrong, they do work for many people but they are just not a good match for my personality.

I started out trading penny stocks and eventually made my way to Indexes and ended up trading options. Over the years, I have tried many different types of options trading. Some require more work than others. Some have a higher probability of success than others. Some are premium selling and some are premium buying.

As you can see it was not a straight path for me getting to the Wheel strategy. It was a lot of trials and errors before I ended up realizing the Wheel strategy is the most profitable way to trade.

5 Reasons Why I Love the Wheel Strategy

1) It doesn’t require me to sit in front of the computer all day long

For some people, trading is just another job. They want to make a lot of money FAST. They look for ways to trade as much as they can and most of them ended up day trading. I am not looking to have another job. In fact, I am looking for ways to NOT have a job. The wheel strategy allows me to do just that. Place the trade and I can walk away for a while.

2) It doesn’t require my attention all the time

Trading the Wheel strategy is relatively simple. Find good stocks that you wouldn’t mind owning them for a while and make sure to choose ones that are unlikely to go bankrupt or reverse split in near future. Once you have done your homework and place the trade, that’s it. Just want and monitor the price once in a while until expiration.



3) It doesn’t make me stressed out or drenched in adrenaline all-day

Trading should not be exciting. If you are looking for excitement, go do something else. We trade to make money, that’s it. There is no need to get stressed or drenched in adrenaline. Do the homework, place the trade, then close the position when the time comes. That’s it.

When placing trades for the Wheel strategy, I already know when I want to get out. If I get assigned, I would just calmly place a Covered call order and wait for it to get assigned. Yes, the stock price might go beyond the strike price. Yes, the stock might go much lower than I anticipated. I am ok with that because I have already taken those factors into consideration/calculation before I placed the trade.

4) It has a high win rate

The term “win rate” might be different from person to person because some people might count getting assigned a “loss”. The way I count it is based on PNL. Even if my positions get assigned, as long as I managed to sell the stock above the entry point I consider it a win, because the overall PNL (sold PUT, sold Call) is positive.

Based on my own trading record in 2020 so far, the win rate is 89% for the Wheel strategy.

5) It’s easy to understand and manage

Have you ever tried to roll up or down an Iron Condor or a Double Diagonal Calendar spread? So many legs we have to figure out what to do with those. I was into trading those at one point because Iron Condor is ideal for high volatility trades and Calendar spread is ideal for low volatility trades.

When it comes to the Wheel strategy, it’s a simple Naked (or cash-secured) Put and a Covered Call, that’s it. To open, decide at what price point you don’t mind owning the stock and choose the strike price based on that to sell Put. If the stock price declined beyond the strike price and you get assigned, hold the stock and decide at what price point you are willing to sell the stock, then choose the strike price to open a Covered Call.

The Wheel Strategy Trading Results

If you are interested, check my trading journals to see my Wheel strategy trading results. What I am sharing with you is not an overnight success. It took me more than 10 years to get here. The reason it took me so long was partly due to my lack of focus. Every time I tried something new that it did not work, I would take some time off for a while then come back to trading again. However, it was during those “off” moments when I would discover new strategies to try so discounting the “time off” as non-productive time might be wrong.

A straight line is not always the fastest path to a destination (check the video below).

Straight isn’t the fastest path.

Posted by Ben Berger on Tuesday, February 18, 2020

 

2 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *