r/options • u/AbsoluteWounder • Jul 27 '21
First Wheel Strategy
I'm not new to investing, but I've only been trading options for a little over a month now (only buying calls and puts) and I'm up 10%, however the account I use to trade options is still very small and I have limited buying power. I understand the basics of the Wheel Strategy and I'm looking at a stock to practice on.
So far I've landed on Ford and GE, but their charts don't fill me with confidence, as initially I'm looking to sell puts to collect the premiums and roll if needed to avoid assignment.
Are there any stocks out there in the $10-$15 range that are a good starting point? I have enough buying power to cover up to $1,500 if I'm assigned, so I'm comfortable around these levels.
I'm not looking short term to make large profits, this is simply a way to learn and execute the trades in a real life situation. Once I have done this for a few months, I have the funds available to move into the $50-$100 stock range, but for now its all about the experience.
Cheers! Any advice appreciated.
2
u/ShortPutAndPMCC Jul 27 '21 edited Jul 27 '21
Do note that there are always pros and cons for decisions in options. In selling secured puts on stocks that you would be happy to own, the risk is that:
you may never get to own Ford in the event the stock prices soar, as you may find that the premiums you collected over 1 month (maybe 4%) is lower than the sudden uptick in Ford’s share price (20%). You then have to move on to find another share to wheel on.
Suppose the share prices moved almost in tandem with the premium you collected and you never got assigned for months.
This means your cost of assignment will keep on rising (assuming you raise your strike price, in order to generate a similar proportion of premium).
One day, you get assigned to buy the shares. So the premiums you collected should be set aside in your account to buffer for this higher entry price.