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Alright picture this: You found the wheel strategy and you like it BUT you have grown slightly bored from it. You feel like it’s good but you want something more…
Well you’ve come to the right place and I’m going to show you how I’ve taken what I’ve learned from running the wheel strategy over the last year, and upgraded it by slightly tweaking how selling puts is incorporated in the strategy.
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For many of you watching this, your first introduction to options was buying lotto tickets (short term calls or puts) trying to pick the direction of a stock and ended up losing money.
Then after losing some money you stumbled across theta gang strategies: the covered call and cash secured put.
And finally the holy grail of theta gang:
The Wheel strategy where you sell cash secured puts to buy the dip -> get assigned shares -> sell covered calls until you get the shares called away -> and finally start over at the beginning by selling cash secured puts
All while collecting that sweet premium for selling options along the way.
If you are unfamiliar with the wheel strategy, then I recommend watching a few of the videos I made on the wheel strategy linked in the video description. And I highly encourage you to ask any questions you have in the comments below because I answer every one of them!
This video is going to show you how I upgraded the wheel strategy to generate more premium and allow me to keep my shares for greater capital appreciation.
Alright now let’s get into the strategy.
The thing I like least about the wheel strategy is starting with a cash secured put because usually when I find a stock that I like and one that I find to be undervalued I want to own it now.
I’ve run into this a few times where I identify a stock I would like to own so I sell a cash secured put to hopefully be assigned and the stock rises in value and now I’m paying more for shares than I would have if I just bought 100 shares when I found it and started selling covered calls.
This really started to annoy me because I want to own at the best price and sell covered calls on the shares. This led me to start buying shares outright and start selling covered calls.
The thing is now, all I’m doing is selling covered calls which really isn’t the wheel strategy anymore….it’s just selling covered calls. So what happens when I combine the covered call and the cash secured put together in one strategy?
This strategy is called “The covered strangle” and is exactly how I upgraded the basic wheel strategy in order to generate more premium as well as get into holding shares much earlier than the traditional cash secured put method.
The idea here is instead of using a put to begin the wheel, we are able to purchase 100 shares of some stock and immediately be able to sell a covered call on those 100 shares while simultaneously selling a short put and collect premium on both sides of the stock.
This is also an effective way to dollar cost average down your position you started. For example, let’s say you buy stock $ABC for $50 per share and you sell a covered call at $55 and at the same time you sell a cash secured put at $45.
This is called a covered strangle because you own 100 shares and have both a covered call and a cash secured put sold on the same stock.
Now lets say stock $ABC sells off and goes below your short put, and at expiration you take delivery of 100 additional shares of $ABC for a total of 200 shares at a cost basis of $47.50. Because I bought my original 100 shares for $50 and then just bought the next 100 shares for $45 when my cash secured put expired in the money.
Now I am able to sell 2 covered calls at the same time and if I still have additional cash available I will sell another short put below the market price of the stock and continue to dollar cost average down.
And this is exactly how I upgraded the wheel strategy! By taking this approach you are able to buy shares of stocks sooner, as well as generate double the amount of income because you are selling a cash secured put and a covered call at the same time.
Let’s look at a real example.
AMD is currently trading at about $81 so if we buy 100 shares of AMD at the market price we have to spend about $8100. Next we can open up the options chain for AMD and go to the June monthly expiration (because we want to sell the nearest monthly to 45 days to expiration) we can select to sell the $70 put at the mid price for $68 and the $90 call at the mid price for a combined credit of $238.
In the traditional wheel strategy, you would start by just selling the $70 cash secured put and collect just $68 in premium.
With the upgraded wheel strategy using the Covered Strangle we are able to take ownership of AMD right now as well as do both steps of the wheel strategy at once by selling a covered covered call, and by selling a cash secured put which puts us in a great place to dollar cost average our position down; should AMD’s share price drop in the short term all while picking up significantly more premium.
If you found video helpful and want to learn more about options, trading, and long term investing. Please subscribe to my channel and feel free to comment down below any questions you might have!
Thanks for watching, i’ll see ya next time. Peace!
