Sign in Subscribe
Strategy

Finding the Best Trades with the Wheel Options Strategy

Finding the Best Trades with the Wheel Options Strategy

Introduction to the Wheel Options Strategy

The Wheel Options Strategy is a popular approach for generating income by selling options. It involves selling put options on an underlying asset you'd like to own at a price you're comfortable with. If the put option expires in the money, you buy the underlying asset at the strike price. Then, you sell covered call options on the asset to further generate income. This strategy earns the name "The Wheel" as it repeats cyclically. Once you have read this article, try the wheel strategy screener to find the best trades.

Finding the Best Trades for the Wheel Strategy

Implementing the Wheel Options Strategy successfully requires finding the right underlying assets. Here's how you can use a screener to find suitable candidates:

  1. High Liquidity: Look for assets with high options trading volume and open interest. This ensures you can easily enter and exit your trades without large bid-ask spreads.
  2. Defined Risk Profile: Consider your personal risk tolerance. Are you comfortable with potentially owning the underlying asset if the put option is assigned? Choose assets that align with your risk profile.
  3. Premium Potential: Higher premiums can lead to higher returns. Look for assets with options that offer attractive premiums relative to their price.

You can further refine your search by considering factors such as implied volatility rank (IVR) and historical volatility. High IVR can suggest inflated premiums, offering lucrative opportunities for selling puts.

Example: Screening for Wheel Strategy Candidates

Let's say you're looking for high-liquidity stocks with attractive premiums. Using an options screener, you can filter for stocks with an IVR above 50 and an average daily options volume of over 10,000. This helps narrow down potential candidates.

The Ultimate Guide to Using a Wheel Strategy Options Screener
If you’re trading the Wheel Strategy, an options screener can be a game-changer in optimizing your trades. Whether you’re selling covered calls or cash-secured puts, the right filters help you find high-probability trades that maximize premiums while managing risk. In this guide, we’ll break down the key components of a
Wheel Strategy OptionsWheel Strategy Options

Risk-Benefit Analysis

While the Wheel Strategy can generate consistent income, it's essential to understand the risks. If the underlying asset's price falls significantly, you could be assigned shares at a price higher than the market value. This is why it’s crucial to choose assets you are willing to own long-term. As we discussed in this post about selling puts, the risk of selling puts is that you might have to buy shares at a strike price higher than the market value.

Real-Life Scenario

Imagine you identify a suitable stock using the screener. You sell a put option with a strike price below the current market price. If the price stays above the strike price, you keep the premium as profit. If the price falls below the strike price, you buy the shares and sell covered calls to generate income while waiting for the price to recover. Then you sell puts again at desired strike price. This cycle can repeat and continues making you potential profits.

Cracking the Code: How Options Wheel Traders Make Decisions
How do Options Wheel traders make decisions, perform stock selection, manage risk, trade, adapt to market & use experience
Wheel Strategy OptionsWheel Strategy Options
Disclaimer:

This article is for informational purposes only and should not be considered financial advice. Investments are subject to risk and should be carefully analyzed before making any decisions.

Follow us on:

Read next

Comments ()