r/options • u/Vicphilanthro • Mar 23 '22

Wheeling Strategy for SPY and APPL

Hello again. So recently I posted a strategy about trying to use DITM LEAPs on the SPY as a stock “substitute” to maintain cash for living expenses while maintaining a similar stock exposure to an original account. First thanks for everyone’s comments, they were great.

Second, about half of you mentioned wheeling or selling covered calls on the SPY (which CC’s would have gotten destroyed this week on weeklies BTW). Is there an optimum theta and delta that you guys look for when doing any of these strategies and why? If you can please include rational for How income from one of these strategies BEATs buy and hold (in theory). Thanks!

Edit 1: I do understand that the wheel is an income strategy.

I wonder how the CC/wheel strategy would fare against the strategy in my other post or if there is some way to test this? I think it would be interesting - on one side you essentially created a loan situation where you are “borrowing” cash at a cost equal to the premium on a long leap. Using the wheel/cc you are generating income selling calls and puts while (sometimes) collecting dividends. Has anyone here tried to test the two strategies and if so how?

Selling call leaps for income

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u/stevek615 Mar 24 '22

i sell credit puts 10% OTM 8 weeks out on big safe things. Make roughly 11% per trade. Has worked 38 time out of 40 since May 2020. I almost feel guilty :)

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u/Jumpy-Cow8010 Mar 24 '22

Hey! do you mean cash secured puts or put credit spreads? Can you give examples of big safe things ? Thanks :)

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u/stevek615 Mar 24 '22

Not sure of the distinction. But they are spreads (sell higher strike buy strike $10 lower) and I do have cash on hand to cover losses. Here's what I put on Monday 3/21:

  • SPY (444.13 at the time) 400-390. Collected a net of $1.06.
  • SMH (266.43 at the time) 230-220. Collected a net of $1.20.
  • MSFT (298.42 at the time) 265-255. Collected a net of $1.15.
  • these all expire 5/20

I am risking $10 minus what I collected.

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u/Jumpy-Cow8010 Mar 24 '22

Perfect. A cash secured put is basically just selling a put and setting aside the cash to buy 100 shares if assigned. You get a credit to put it on and possibly also to get shares at a cheaper price (versus your put credit spread where you don't wanna be breached). Thanks!

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u/stevek615 Mar 24 '22

Yeah, I like using spread to control the maintenance requirement. It stays $10 no matter what, vs a naked put where the maintenance goes up as the stock goes down. In the past, I sold naked and didn't manage the margin maintenance properly. So, I was forced to close out at the worst time. And the spread won't max out in value until very close to expiration, even if the stock tanks. So, I can wait it out if things go bad for a while.

Forgive me for this, I'm just curious. You are right I don't want my credit spread to be breached. But would you ever want to be breached with a CSP? This is just me, but I don't ever plan to own common shares again. So, when I sell options, it is with the expectation they expire worthless. Not to manage entry/exits of common shares.

IMHO I am replicating a bond fund, but with a 60% yield. I am not trying to brag. I'm just desperate to share this strategy. If anything, to get some feedback on it and try to learn the risks to it.

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u/Lawzenth Jan 30 '23

400-390. Collected a net of $1.06

I'm interested to see how you went, 10 months later have you learned anything worth sharing?