How to Retire with $437,000 (the Wheel Strategy)

[@JakeBroe]

For everyone who likes this video they will be able to financially retire before the age of 59! Give it a try! You can check out my entire playlist on trading options here: kzbin.info/aero/PLscTZuOqKWIxSZzy4ObKWDznEsCot_1HU

[@GilbertFleming]

One more question for your question and answer session… I own 100 shares of Jpm, mo O and Brookshire Hathaway. I want to own the shares long-term, but I want to write covered calls to increase my income. My June 17 options expired. I have two choices: Number one… Buy more one month covered calls on the Stocks on Tuesday when the market opens up. I would look for a strike price that has a Delta of Les than 0.3 Number two… Wait until the market hits a new high or at least turns much higher than it is today. Should I just sit on my hands for a week or two and wait until the market as an update, and then sell covered calls on the Stocks?

[@RandyLy]

YES! This is the strategy I've been implementing. What I do is sell a put and use that premium to buy shares of SPY. If assigned the put, then I sell a covered call at the exact same strike price I got assigned. Then I use that same premium to buy more shares of SPY. If assigned the call, then it is as if I just held onto the stock and am leftover with the exact same amount that I can sell the put for. The only bad thing is that I might have to play catch up if the stock goes up too high, but that's where the shares of SPY I bought using the premium come in handy.

[@holysmokes6709]

Spy is a hard one to get the capital to write puts for I keep the premium in cash and wait until Monday to decide what to do with it. I might not have enough capital to write a spy put but I can write puts on other stocks in the meantime.

[@DieWolf57]

What will You do if the price for SPY goes further down and You had to pay the strike price ? At what strike price do You think You will be able to sell the covered calls ? Surely far less than You paid. To make Things easier: Current price for share X is 100 USD. You sell puts at a strike of 90 USD. The price crashes to 80 and You will have to buy at 90 USD. There is no way You will sell a call at a strike of 90 USD. I really like Jake - but if the wheel would work as promised why should Jake continue to make videos at all ?

[@sithcat7025]

@@DieWolf57 Because he doesn't have $437,000 cash yet to invest?

[@nervosa68]

Thank you for sharing. I find it difficult to understand anything macro economic / financial. You have presented this information well and i think im getting it. Ty.

[@ForEverWarrior]

@@DieWolf57 use 15-20% of the premium earned to buy a put and protect down side risk to an extent. this is called a "collar". e.g., SPY is 400, you sold covered call at 401 strike and collected $8 in premium with 30 DTE. now buy a put at strike 380 (just an example) and pay premium of $1.5 for eg. your loss is capped at $20 while you make $8 in premium.

[@telefrk49]

Great video, i'm 67 years old and have been doing this for a year and a half...i am so grateful to the friend/mentor who taught me this method. I sold a rental house that was positive about 500 per month, i sold the house at the market high in 2022, and now use the cash proceeds to make an amount per month that i never imagined possible...

[@aat3tville181]

I am actually doing the same thing I have a few more properties to sell but have about 190k doing this making way more with less stress on the money I have 6 more properties to sell

[@IPx3_Broken]

i'm glad you mentioned reinvesting to lower your cost basis. people forget to do this, then the stock ends up going down and down and the premiums they would receive at their existing cost basis would be too low for this to work.

[@IPx3_Broken]

then they try to sell calls at a strike below their cost basis and end up losing money when they get assigned! don't be that guy

[@user-so7ie4qz1z]

When this video was made Jan 23 2022, the VIX was ~30, and today it's about half that. Option prices are highly influenced by volatility (VIX), and today the SPY is at ~416, while the VIX is only ~18%, so the same option strategy will only produce about 5k/month, at the money. I am enjoying Jake's videos, but options are complex, be careful. Jake's video on Pin Risk is great advice - required watching if you're thinking of trading options.

[@kmoney00769]

Thanks. Never heard of Pin Risk

[@Putseller100]

You aren't kidding on that. Just for fun I looked up premiums as of now (4-1-24) and even with SPY almost 100 higher than in the video you would need to go out 88 days in expiration to receive 11$ like Jake shows. So now basically 4 months out where as Jake was showing 1 month out. That is an insane difference.

[@NoName40460]

yeah, just checked (9/24)... def not the same.

[@justicelee26]

The problem is when the underlying drops massively in value while you own it you can no longer get the premiums you need at any strike above your cost basis. So now you either sell a covered call below you cost basis or sell one way out of the money for very little premium. This strategy is nice until the market starts making massive moves.

[@GilbertFleming]

I guess this is why Jake is saying only buy stocks that you want to own. I’m going to own spa anyway

[@chrisgallon3037]

I would use SPY or QQQ. More expirations and moving not as great movement on bad or good days

[@Raevsky78]

Precisely. Good luck selling CC on a paper that dropped 30-40 points. You can of course try and collect pennies in front of a steamroller…

[@wyatthale555]

Well you can always hedge your holdings by buying puts or selling call spreads on indexes if market conditions aren't bullish. Thats what I do

[@shawnd567]

Sure but then you hold and sell CSPs to recover. You can then lower your cost basis and start selling CC again.

[@JeremyTheApe]

Great video Jake! I've been doing this strategy for a while. It would be brilliant if you did a year end summary if you kept going with this for 2022. My guess is with strike selection further out of the money it would have basically been a push, as with SPY down 20% YTD most strike selections would have meant the declining market would have cancelled out the premium collected. (Or quite likely gone negative) How to use this strategy in bear markets like we're in now would be another useful video. For instance timing put sales with when we hit lower lows of the downtrend, DTE / expiry selection, trade management / rolling ideas, etc. Keep up the great work!

[@UtahKent]

Running a wheel works. Be reasonable and patient. The best thing about the wheel and a long-term sideway stock is stock prices move cyclically. Thanks Jake.

[@Pieter2360]

This is a nice strategy that I’m also using with a small part of my portfolio. One thing to point out are taxes, and especially stamp duties or some other for of transaction-triggered tax if you’re a resident of a jurisdiction where such taxes apply. As the wheel strategy potentially results in frequent purchases/sales transactions of shares, these stamp duties really can add up quickly, eating away a big chunk of the net premia received. For US based investors, please be aware of short term capital gains taxes which this strategy most likely triggers.

[@JustinVConroy]

Solid strategy. I know several folks with with a lot more experience and capital than either of us who have been doing this for over a decade. Not exactly as you describe ($500k, SPY, etc) but same basic concept. Can't remember the last time any of those folks pulled money from their 401k or IRAs except for RMDs. Most of them are just living off premiums from selling CCs.

[@scottwilly86]

do you happen to know what they do if the price takes off? just pull money out of their 401k/IRA to cover the increased capital required to sell another put?

[@citizenm9590]

@@scottwilly86 i don't think they are selling put they are doing covered call

[@joecoupon8299]

Jake, I'm NEVER disappointed in your videos!!!

[@JakeBroe]

Thanks Joe! Glad you like them!

[@mcgragor1]

That's all great, but do a scenario where you bought your 10 cash secured puts right before the crash of 2020, and tell the investor what to do in that instance. Someone else made a similar comment and I gave my input below, so maybe you will see one of these and comment. Thanks

[@citizenm9590]

I had same question cashed secured put risk in a crash situation buying right before market crash. Is it safe to say covered call is a better play then covered call minimize the risk?

[@aaronsdecker]

Hey Jake, I like this strategy. Just read through most of the comments. I would say more than half of people think you can’t make this work. I look forward to watching you make this happen. Keep up the good work.

[@wealthelife]

It would nice to see what would have happened if Jake had implemented this in Jan with the $100K or so he had in his trading account. SPY dropped to $366 in June, so would be nice to see how the actual income streams and capital value would have worked out this year. Instead Jake shorted the QQQ when it was dropping (probably hoping to reach his $437K retirement goal as the world plunged into recession and the QQQ tanked), and then lost (on paper) a lot when QQQ rose for a while (not sure how his position ended up as he was going to close out if it dropped a bit before expiry date, and the market did drop, but then rebounded again -- Jake seems to be focussing only on his Ukraine war vids these days.) A back-test of how this would have worked out over a 2+ year period if started off in Jan 2000, Jan 2008, Jan 2020 or Jan 2022 would be interesting.

[@nervosa68]

Ditto on that..and all the little steps inbetween.

[@marlalama4513]

The more I watch your videos the more I understand options, thanks Jake, love your teaching. I am just amazed how calm you are while everybody in youtube is going crazy and dreading the next few days.

[@JakeBroe]

Haha, thanks Marla! The best traders are the ones who can control their emotions and remain objective. I try to remember this before I open up my computer for the day. Cheers!

[@BM-ub9gh]

@@JakeBroeI collect smart quotes from famous minds and I’m adding this one to my collection: ”The best traders are the ones who can control their emotions and remain objective.” JakeBroe, THE smart man of KZbin

[@yudhamica17]

If you haven't heard this yet, your videos are amazing. You're very easy to follow, the pacing of the video is great, the visuals are awesome. Thank you very much Sir.

[@tomTom-lb5cu]

Perfect , I needed this today because I’m teaching my sister in law and family . That’s all I’ve ever done is selling also. Jake I do it mostly inside of my self directed IRA that I had to get after leaving a jobs 401k plan. No taxes for capital gains for anything until obviously I taking it out. But it makes a huge gain at the end of the year portfolio value in all market conditions as you know. Thank you for this video today and yes I watched many of your other ones a couple years ago. Glad to be back.

[@StMalk]

Jake, your vids on that are on of the top on KZbin. Thank you for sharing the process in such detail and a whole lotta videos.

[@huskydeal]

You have been my favorite channel to learn about investing. With your explanation everything make more sense. Thank you for doing such a good job. Wish you well!

[@JakeBroe]

Thanks Husky Deal! I appreciate that!

[@azizmehdi]

Hope you will make the video on explaining the strike price soon and how to pick the right one based on other factors… bullish, bearish market…. Thank you.

[@JakeBroe]

Hey Aziz! It's all mixed in with my buying and selling, but generally I always just go straight at the money when picking a strike.

[@gustavtheunholy6290]

Interesting strategy. I see comments concerned over the price of SPY declining which as you say we're not bothered by, however, I see the problem as too much rise. Say you've got your $437k ready to go and you get assigned at $437 (collecting $6k towards living expenses, and $5k to be reinvested). You then sell a CC at $438, collecting the next month's expenses and another $5k to reinvest. But during this month, SPY goes up to $455. You have your sold SPY for $438k and have $10k of reinvestments, but the cash needed to secure the put would be $455k. You would be short $7k. You could sell a put at a lower strike, but would receive a lesser premium, and therefore less to reinvest. It seems in a bull market, one would constantly be losing ground on your purchasing power to sell CSPs. Something to consider, I suppose. Love the videos, Jake. Thanks.

[@art_without_borders]

I have exactly the same concern. Wheeling is better for the stocks like AMAT which is channelling. SPY is usually goes up unless it plummets. If you sell CC with the strike price 438 on the SPY that is 437 today, in 26 days it will be higher than $438, most likely. So, in 26 days, (actually sooner) not only you would be better off if you didn't have the CC, you wouldn't be able to restore 1,000 shares of SPY, as by that time the price of SPY will be too high.

[@cleaner1984]

Very interesting point! One thing though, if the price of SPY goes up from $438 to $455 like in your scenario, yes the cash needed to secure the new puts would be much higher ($455k). But the premium you would receive for these CSPs at this strike price would also increase a lot so you would probably make up for the increase in cash needed to secure puts (provided your capital can still let you afford to sell the same amount of Options contracts).

[@onatski]

on a margin account, you would only need less than 10k to sell a naked put on SPY and you only need less than 25k if you do get assigned shares.. i do not recommend this if you don't have the full amount to cover but in your scenario, it would work in a margin account..

[@buckjohnson8360]

Or maybe you would have to sell one less contract

[@peteswartz5790]

Wheel Strategy - GREAT IDEA - What do you do if you are assigned and the SPY drops say another 30 points - well below your cost basis. - The ATM cvrd cll for the next cycle still puts you below your C/b. Therefore, there would be a "net" loss. I'm doing this with LRCX and that is my situation. My C/B is 25 pts below the current price. TY

[@jiti5034]

This will not be answered

[@MentholCiC]

@@jiti5034I was just literally asking chatgpt on that scenario and you have few options. 1) definitely do not sell covered call below what your strike price was 2) remember that you started entire strategy with belief that stock will be bullish in the long run Here are some options for you: Great question! In that situation, where you’re assigned at $99, and the stock price drops significantly to $85, it’s understandable that you wouldn’t want to sell a covered call close to the money (e.g., a strike near $85) because it would lock in a loss if the stock price rises and your shares are called away. Here’s how you might handle it: 1. Hold Off on Selling a Covered Call Immediately: Since you were assigned at $99 and the stock drops to $85, you’re sitting on an unrealized loss. Selling a covered call with a strike price near $85 would cap your upside and lock in those losses if the stock recovers. It might be best to wait for the stock price to recover or sell a higher strike price call. 2. Sell a Covered Call Above Your Purchase Price: If you’re confident the stock will eventually recover, you can sell a covered call with a strike price at or above your cost basis ($99). While the premium will be lower, you can still collect some income without locking in a loss. • For example, you could sell a $99 or $100 strike call. Even though the stock is at $85, selling a higher strike call gives you some premium without risking selling your shares at a loss. • If the stock recovers to $99 or above, you’ll sell your shares at breakeven or with a small profit, plus the premium you’ve collected. 3. Consider a Longer Expiration: • If the stock stays depressed, consider selling a longer-term covered call with a strike price above $99. This can give the stock time to recover and give you more premium than a short-term call. • By extending the expiration, you might receive a decent premium even with a higher strike, but you’ll be locking in your shares for a longer time. 4. Roll the Covered Call: • Another option is to roll the covered call if you’re in a scenario where it looks like the stock might recover slowly. You can sell a call at a higher strike or with a longer expiration and continue to collect premiums over time. 5. Wait It Out (If Necessary): • If you’re really confident in the stock’s long-term potential (like NVIDIA), you could simply hold your shares without selling any covered calls and wait for the price to recover before resuming the Wheel strategy. You might miss out on premium income in the short term, but it could avoid locking in a loss. Why Selling an In-the-Money Call Isn’t Ideal Here: If you sell a covered call near $85 (in the money), and the stock starts to recover, you’d risk having to sell your shares at a loss (if the stock hits $85 and your call gets exercised). Ideally, you’d only sell calls at or above your cost basis when you’re looking to avoid taking a loss. Key Takeaways: • Don’t sell a close in-the-money call if you’re trying to avoid locking in a loss. • Wait for a recovery or sell a call at a higher strike price (near your cost basis) for a lower premium. • Consider longer-term calls to collect more premium while waiting for a stock recovery. It’s all about balancing premium collection with managing risk, and in this case, patience might be your best ally.

[@mikeyiorio1880]

Thanks for the video Jake! Would be sick to even show you doing this once a month and more so applying what you do (more visual learners) but I agree, looks like a great strategy especially when you can reinvest half the profit

[@JakeBroe]

Not a bad idea Mikey! I can think about this!

[@jeffha4057]

This works if the market remains static, which it never does. If it goes up too much, you need more capital in order to be able to sell 10 CSPs. For instance, SPY was close to 480 recently, so 437,000 wouldn't have been enough to cover 10 contracts. It also doesn't work if the underlying ETF drops too much, because then you are just forced to hold your shares and either attempt to sell CCs at a lower strike or sell at a higher strike and get less premiums. Your examples are good for one month, but it would be fascinating to see how this plays out over a year with real examples. Thanks for the video, as it's a more realistic way to "retire early" than the people who are delusional enough to think they'll ever have enough capital to live off dividend income. I've been selling options for awhile, and it's really only been a problem when the underlying stock falls too much, and then I'm forced to either take the loss or try to sell calls at lower premiums, while hoping that the stock recovers. At least you know SPY will recover at some point.

[@GilbertFleming]

Would mutual fund prices be more stable than individual stocks?

[@reelhawksstudio]

Buy more shares if it's too low, it'll reduce your cost basis.

[@hankking4878]

I agree with what you say here this does not work the way he explains it. If it's static yes it will work but it's not prices fluctuate up and down if it's down then you're forced to sell at a price lower than your basis.

[@andis9076]

@@hankking4878 That's true. He should expose the risk if holding $437,000 when the market crashing like right now.

[@rpuggal]

@@andis9076 the risk is no different than if you were just holding spy shares and not doing the wheel on it. He's assuming that the price will never move lmao which is totally untrue. The example in the video is too simplistic and should be talking about selling spy puts at a certain Delta regardless of price and same for the call side. As the price goes up you need more doller to run the wheel or reduce number of contracts sold. The video is way too simplistic and looks like he's never done the wheel himself lmao and just found out about it 5 mins before making this video.

[@Vanya80151]

If you are going to trade 10 options, you should time spread them so that your risk is more manageable if the market has a quick move.

[@JakeBroe]

You can do this if you like Ivan!

[@commutebiceps781]

New place coming together nicely Jake!

[@JakeBroe]

Yes it is CB! Cheers!

[@arnaldoleon1]

One problem with the assumption of 10% per year for future returns is that historically there are 20-year periods of 20% returns followed by 20-year periods of 0% return. Yes on average you're getting 10%, but timing is critical

[@GilbertFleming]

Good morning Jake. We shared a message in which I wrote that I had heard that SPX is taxed as a long term capital gain even if you held it less than 366 days. Here is the info: " The other reason is that the SPX is settled in cash. When you trade Options on a stock, and it expires IN THE MONEY, then you either have to take ownership of the stock (when Selling Puts) or sell shares of the stock (When Selling Calls). With Index options, like SPX, OEX, NDX, etc, since they settle in cash, part of the gain is considered Long Term by the IRS. Basically, 60% of the trade is Long Term Capital Gains, and 40% is Short Term Capital Gains, REGARDLESS how long you hold it (in my examples above, only one day!). So there is also a tax advantage in using SPX."

[@JakeBroe]

I don't think I understand this Gilbert. I am not sure why if you held the ETF for less than a year why any part of it would get favorable long term capital gains.

[@GilbertFleming]

@@JakeBroe I have so far seem to video options gurus who said that you were taxed less on SPX. I also don’t know why!

[@johnnocanuck]

Liked and subbed. This is the clearest explanation of the Wheel Strategy I've ever seen. By the way, the Wheel Strategy works in Canada, too!

[@JakeBroe]

Welcome to the channel John! Great to have you with the channel!

[@ForGodsGlory70]

Been doing something similar, but need to come up with a "system" and this is great inspiration. Your videos are always good and helpful. Thank you Jake!

[@JakeBroe]

Thanks Summer! You definitely have to have a set of rules you can follow and remain objective. Months like the one we are having right now is enough to scare most people away from this kind of strategy, but a month like this is an exception, not the norm.

[@sk510sk]

@@JakeBroe Just started with NVDA covered call and selling cash secured put. It has worked in this down market as well. I am a long term holder of NVDA, so I follow the stock closely.

[@stevensaxon8888]

@@JakeBroe just found your channel today & watch this video. What are some stocks for a small account say under 5k? Any $5-20/share stocks for cash secured puts or covered calls?

[@Artome001]

Observations: Selling at the money calls increases your chances of being assigned, which has bad tax consequences (short term gains VS LT Capital gains). The better idea is to never get assigned by simply rolling the options, after all you are holding the underlying as a LT investment. That generally results in lower option premium income when the rolling occurs (but the extra $$ is actually locked up as an unrealized capital gain, which is OK). As Jake also pointed out the options premium income is taxed as regular income which will reduce the actual annualized return and land you a hefty tax bill at year end.

[@zachnicholson7924]

What if you keep rolling cash secured puts for a year without ever getting assigned? Will they be long term gains?

[@freddybenelli9100]

@@zachnicholson7924 No. Each time you roll to a new put contract, you are closing your previous position and entering a new one. The only way to get long-term capital gains treatment on this sort of trade is to hold a given contract longer than 1 year, which obviously isn't possible when they only have 1 month to expiration.

[@ChaosAI24]

You should make another channel for trading, I follow you for Ukraine for about an year and now tube recommended this. I was surprised you are into!

[@maguchka1952]

Good video, but I have one problem with it. What will you do if price will go 10% below your put strike? What strike you will choose for covered call? below price of assignment or at that price? Because if you get into bear market and you get assigned the price for call at assigned price will be much lower than 2.4% month

[@mysorep]

Well articulated! Staying with the shares will also help to collect dividends 4 times a year

[@JakeBroe]

Very true! Cheers Prasad!

[@jamesjacob6841]

Hey Jake, I keep loving your videos...I believe my investing trajectory has drastically been improved since I see the potential thru these relative safer options plays. Thanks so much!!

[@JakeBroe]

You are very welcome James! Cheers!

[@michaelal20]

One day when I have my debt in check I’ll be looking through all of jakes videos to learn all of these complicated things I don’t know about.

[@JakeBroe]

Solid plan Mike! No worries, these videos aren't going anywhere!

[@squarebaga116]

Thanks for the sharing. But if the SPY goes down quickly you won't be able to sell covered call with high premium. If it keeps going down, the premium is getting less and less.

[@andis9076]

Everytime stock crash, the call value is getting crushed so you've huge lost from holding 437K of stocks plus you can't sell call without loosing amount of money ! Basically this wheel works when stock AND market is stable.

[@CSPare_CChange]

Right, so you just wait for a recovery. Don't force the wheel. The only underlying you should wheel on its something you mind owning. A lot of bad stuff has to happen if SPY goes to $0

[@kevincarrigan2798]

@@CSPare_CChange yeah and most people who do this strategy have plans for when things go bad. They also tend to notice a crash a little sooner than the average Joe.

[@cryptoenthusiast4999]

@@CSPare_CChange Exactly!

[@sparth1989]

you can still get high premium as long as you choose ATM strike no matter how low a stock dips

[@lizlemon9632]

Great strategy: wash, rinse, & repeat. Thx. for sharing.

[@viktoriiawahl8578]

Thank you for making this video!

[@JakeBroe]

You are very welcome Viktoriia!

[@djkingshameek]

Brilliant mate!! I’ve done a few cash secured puts myself but I really love these numbers!! Thanks Jake!

[@JakeBroe]

You are very welcome djking! Cheers!

[@TopRetroCommercials]

thanks i just stared this strategy a month ago so far so good ive made like $2500. So far so good.

[@brusk3978]

The first minute of this video is what I told my family after telling them over and over but non of them listen… “I’m not trying to convince you I’m just gonna show you what I know…” Today I’m 37 retired and I’m also the youngest of my siblings…

[@JohnBaker-jj5tx]

I’m guessing you’re not really retired in the traditional sense though? Ok, you don’t work for someone else, but you still need to ‘work’ by constantly managing your funds to hopefully produce an income and if you have a bad run you’ll need to find work or sell assets, so no, not really ‘retired’.

[@kbuzz9607]

Can you update on how you handled spy downed to low 400 now. Were you assigned, or rolled out? How did you sell covered calls now if did get assigned at that high?

[@InfoRanker]

The only time I ever made money with options was covered call on SPY. I would avoid options overall. A simpler method would be to just buy something like JEPI which does all the work for you.

[@Huitzilopochtli526]

I've been watching your Ukraine stuff for months, and here I go looking for investment strategies, and there's my buddy Jake again! Lol. Thanks for the explanation.

[@alondob]

Great video! This is precisely what I’m trying to do. I’m targeting 3 more years to reach $439K in my trading account.

[@JakeBroe]

Solid plan Alondo!

[@62orbetter33]

Jake I hope you can address this in your next Q and A? How would you change this video, if at all, given the current market conditions? In the video, SPY is at $437. But today, it is at $413. The warnings were that the S and P was at a high and declining. Would you skip the transation time? Or move ahead in the hopes that it would work out over time? I sold one put for April 29 for a strike price of $436. I bought to close and it cost me $1705, since SPY had declined to $390. What would be the pros and cons of holding on? I guess if I would have held on, I would have 100 shares at a loss ($436 - $413) of $23 per share?

[@62orbetter33]

Hello Jake. I’m reposting this, from two weeks ago, hoping that you’ll see it and that you will include it in your question and answer session that you’re gonna be working on. By the way, I sold a put option for SPY at $385. Well, it expired yesterday. And I’m the proud owner of 100 SPY shares that I’ve lost about $15 per share! How should I play this on the wheel strategy? Should I try to sell call options that are outside of the money. So I don’t lose my 100 shares. If I lost them now my paper loss would become a real loss!

[@memefaker9065]

@@62orbetter33 Tried backtesting with 1 option of SPY starting 1/1/2022 and trading option for last day of month each month @ +/- $10 strike of price on 1st of month. Ended up with -$4,156 or -8.96% which destroys the alternative of investing the $47,496 (SPY price on 1/1/2022 x100 shares) and ending at $38,423 today for a whopping $9,073 loss or -19.10%. Would have been assigned put contract on 1/31/2022 @ -$1,090. Then you'd end up selling shares on 3/31/2022 @ -$782.00. Then you'd be assigned put contract again on 4/29/2022 @ -$3,782. In May, June, and July your covered calls would make $1,927 while you shares decreased in value by about $2,777.

[@memefaker9065]

@@62orbetter33 Not financial advice: if I were doing this strategy, I'd sell on 1st of month for last of month option contract @ +$10 current price for call or -$10 current price for put (put if you don't own the stock). If market is crashing, you're likely to lose money, but nearly as much as if you had just bought and owned the stock.

[@wannaknow4184]

Another great video Jake. Thanks

[@JakeBroe]

Thanks wannaknow! Cheers!

[@lolwtnick4362]

i did half this strategy with CC and each time buying more stock. And it worked great for 6 months. the market took a big tumble on my volatile tech stock and i sold and still managed to break even. Time to play the other side.

[@VijayMatlapudi]

one condition i would add is...stay sidelines/ close positions when vix >20

[@rpuggal]

Why ? Selling premium when vol is elevated is the best time to do it. Vol is always mean reverting. Won't stay elevated for ever.

[@jl9484]

Thanks Jake, I like it. Not much more risky than just holding SPY. Got to put it somewhere guys. And the more you put your calls OTM, the less risky. Of course less premiums. One other thought is one could just do the covered calls during less volatile periods skipping the put. And the puts on days like today. But holding SPY without options lost today so options work!

[@rhodalayla410]

Well explained. Thanks Jake. Simple strategy and very low risk. Brilliant!

[@JakeBroe]

Thanks Rhoda! Cheers!

[@TR-lh9yz]

This is NOT a low risk strategy. If you sell an ATM put naked and the market moves down, you lose a ton of money. Unlimited risk!

[@ts4426]

@@TR-lh9yz but with this strategy you aren't naked. It being a cash secured put means you aren't naked.

[@TR-lh9yz]

@@ts4426 No it doesn't. Cash secured just means you reserve the money in your account to buy the stock at the put strike if you get assigned. It's "naked" if you don't have another long put protecting the downside. A naked put has unlimited downside risk whether it's cash secured or not. Say the stock is trading at 100 and you sell the 90 put. If the stock drops to 80, you lose $1000 per contract whether it's cash secured or not.

[@Erdbeerschorsch2011]

If the stock market tanks, you're not going to see any noteworthy options premiums for possibly multiple years, only dividends. So, if you need $6000 per month and you wanna have a safety buffer of 2 years (which seems reasonable to me) then you need $6000 * 24 = $144000 more in capital, that you're not using to sell CSPs on.

[@ianwinegardner]

Great video, Jake. I really like the wheel. I haven’t tried it yet but want to. It just seems too good to be true.

[@JakeBroe]

Haha, the deck is stacked in favor of options sellers. Unfortunately those are the people with all the money already...

[@waleedshaarani1897]

You’d make such a great professor!

[@edod2997]

Nice video. It's really all material you've covered in other videos, but it becomes more clear when the focus is on the retirement strategy. I'm definitely looking into this. Do you think this strategy would be good in a Roth as an account builder rather than income?

[@JakeBroe]

Thanks edod! Yes, as soon as I roll my TSP (gov 401K) in to my IRA I plan on doing this.

[@gandmemoney]

Thanks my man Jack, I’m always looking for a better way. And you found it as always. What is a good time to call you. I tried the other night but we missed each other. Thanks again. George.

[@davidpearce4838]

Great explanation Jake. Thank you. 🙂

[@deviambati3805]

Hello Jake, an interesting video and inspired to try out with 1 contract. Let us see how the market goes next few days - hope for the best. Good luck to everyone. Thank you for a detailed video.

[@JakeBroe]

Thanks for watching Devi! Cheers!

[@GilbertFleming]

Yes I’m saying thinking the same thing I wanna try with one contract. I am over 59 1/2 and I have money in my Roth. If I can make this work on my Roth it would be fantastic

[@kanegs1]

@@GilbertFleming Especially now with the drop in the market, Put premiums are inflated. the 20 delta put for this friday pays $2.20-ish !

[@kevinkinsella7815]

I like the way you think. I like the flow chart. Nice

[@JakeBroe]

Thanks Kevin! Cheers!

[@OverTheCap10]

Great video… thanks! It’s actually a quadruple income strategy. Don’t forget Dividends if you hold the stock!!!

[@JakeBroe]

Haha, you are right Josh! Nice catch!

[@BilalInSanDiego]

How's it going? Where are you now money-wise?

[@LalitDevraj]

Jake, you're really, really good at explaining things/concepts etc; it's wild- keep it up as you always do :) Still can't believe how shocked I was to see you in the Graham Stephan testimonial for his YT course

[@JakeBroe]

Thanks Lalit! I'm in a testimonial for Graham's course? I didn't know that.

[@LalitDevraj]

@@JakeBroe Yupp, you, Jake Tran and a couple others- amazing to see how you literally grew so much with literally the consistency- big ups :)

[@EastAfricanSniper]

Great video. Will be doing this strategy when the market is less volatile

[@hlhl2691]

Bro, you been taking salty shots at the ppl in the comments in your recent videos. Forget about them and keep doing you honey boo boo. 🔥

[@PRHBxEaSyKill]

Wow! Definitely an awesome strategy will try it in the future when I get that amount for collateral 🙏🏼. Thanks always for the excellent content!!

[@GilbertFleming]

Jake, I have another question for your question and answer session. It is regarding my shares an SPY I own 200 shares of SPY, with a paper loss of $10,000. I would like to erase this paper loss. Idea number one… Sit on the chairs and wait for the market to bounce back up. It may hit the 200 day moving average but then it’ll move back up. Option number two, sell covered calls to erase the paper loss. I can earn $1000 a month and cover call revenue if I can sell two $500 cover calls per month. If I sell covered calls at the strike Price of $380, My earnings would be $500 per share. I Dona thousand dollars

[@GilbertFleming]

What I meant to say is if I sold to cover calls and earned $500 per covered call, that would be $1000 a month, in 10 months I’d have my loss erased. But what if my covered calls are called away? Then my paper loss becomes a real loss! You don’t make money by buying high and selling low! Do you see any otherAlternatives to deal with my 200 shares? Can you make any comments on this issue? Thanks again and enjoy all you do. I’m glad for your comments on Ukrainian war. It’s changed my outlook on the war

[@JakeBroe]

Hey Gilbert! That is the risk you take running the wheel! I also have 200 shares of SPY and I am selling covered calls on them right now since I think the market is going lower next month. But if I keep doing it, eventually I will be assigned and then I'll realize my lost as well and then go straight to selling a cash secures put.

[@GilbertFleming]

@@JakeBroe That makes sense. You’re selling covered calls on SPY because you think the market is gonna go down. Are you selling them at the Delta of less than .3? Or are you maximizing your return premium by selling them closer to in the money?

[@billyrbii]

What a great strategy! This really looks good.

[@JakeBroe]

Thanks Donnie! Cheers!

[@ctkmobambi]

Good break down.......my head is going around in circles........but good explanation 👍

[@gandmemoney]

I did this around the time you made it with 1 put it payed 1160. I closed it 3 days later and kept 1000 , I could of let it run for 20 days longer and got full pay but thought I would do a second one and get paid twice in a month. For the record I have not yet done the second put yet because of the increased price of shares .

[@kitchensfrance4782]

I do this all the time, close it out if it hits around 90% and go again on something else suitable or wait for it to come back down a bit

[@lucygoose6052]

That was fun! Can u do that again on a smaller amount, say $200k

[@xavierdoisneau3472]

To gain additional income, brokers will allow you to invest the buying power for cash secured puts in Money Market Funds to get an additional 5% return. However when you do get assigned, you will need to liquidate the fund to buy the shares. You do not need margin to do this

[@gandmemoney]

Excellent as always

[@mohamedha578]

Great video as usual, but I have a point, you should buy and sell far from ATM Because high move up or down will cost you a lot capital , less returns but more safe I have subscribed to your channel 🙏🌹

[@JakeBroe]

Welcome to the channel Mohamedha! Great to have you with us!

[@andis9076]

@mohamedha578 Why high move UP cost a lot of capital ?

[@cleaner1984]

Great strategy Jake! I know this is nightmare scenario but... what would happen if the stock market crashes and SPY goes back to $337 (pre-covid high) and you've sold 10 cash-secured puts at $437 or a little less? I guess, it would take a long time to recover (I know it's just one stock but we've just witnessed NFLX losing $100 overnight). In my catastrophic scenario here, you would have to spend $437K to buy something that is now worth $337K, so a loss of $100K in account value. Even if you continue to sell CCs after that, the premiums you would get for it would be really lowered. Also, you would still have to pay taxes on all the premiums you collected during the tax year although you have lost $100K in account value during the same year which doesn't even count as Capital gain loss if I'm correct!

[@isambo400]

Yep that is the problem with taxable accounts and trading options

[@kanegs1]

So BTW, all this can be done in a IRA. There is the option (no pun) to 'Roll' your position (down and out, in this case). Or as you mention, sell calls against it, typically at the 15-20 delta so as not to get assigned, to capture additional premium and lower your cost base as you crawl back from the downturn. Just a couple of 'maintenance' techniques to employ when trading options. Additionally paying attention to the overall market, maybe not going 'all in' initially and holding back some capital for this type of scenario, to then 'double down' and wheel in some more. Many ways to skin the cat with options.

[@mcgragor1]

Odds of that happening in 1 month would be rare, but if things start to get scary, you could always buy back the option, for a loss of course, but a lot less than holding into infinity. A year like last year, what he is saying probably would have worked great, but in a volatile year, think 2020 in March down 30% in 1 month, and your scenario would have played out, but again, that doesn't happen usually, but obviously it can happen. Another way to help protect is to sell out of the money, give yourself some cushion, but of course the premiums won't be as good, but instead his 37% scenario, shoot for 15 or 20%. By giving a cushion of 5-10% it would in most cases keep you safe and in a really bad case, keep your losses maybe in the 20% range or less, especially if you buy it back. I may be missing something, only been trading options for a bout a year, so maybe he will see your comment and mine and chime in.

[@twr243]

You can close your options early. Or roll them.

[@sreke77]

I agree with Mcgragor .. I have been doing this , works like a charm. I give a cushion of 5% when selling puts , so a 10% drop does not hurt me as much when I have to do sell call after its assignment. A 30% drop takes 6 to 12 months to come back - just hold onto your shares . Never sell assigned shares for a loss . The key is to Not panic and enjoy the ride ! That's how you become a millionaire. Over a 10 year period you would have made an average of 15% to 20% per year on your capital which otherwise you would have lost to inflation anyways. Remember to do this wheel strategy with 'excess cash' after setting aside money for index fund investments in brokerage account & IRAs and even better if you have cleared your home mortgage or student debts if any, and ofcourse after setting aside emergency expenses. Then, you are least anxious about locking in a huge capital on a 30% market drop. Also when I do the wheel, I only do it on SPY and not on individual stocks , since the recovery time for SPY on major crash is the fastest compared to individual stocks . Hope that helps!

[@jasonnysacleomedes5084]

Thanks. Been doing that, but with individual S&P stocks. Having a blood bath at the moment but will keep going.

[@ghejamly3945]

Awesome sounds great thank you so much for your help I really appreciate that you are much better than other KZbinr, They are selling course and Waste time, to give you something Tough doesn’t Wake money.

[@ampiciline]

Jake , thank you so much for your great explanation .... Jake , my biggest concern in this beautiful wheel strategy is the STEP # 4 ( at 6:47 ) . why ? let me give you a worst case scenario ...... if for example a " black swan event " starts forming at the stage 4 , and stock market continue going down by 60- 80 % , then how we can exercise or execute " SELL COVERED CALL when stock market is in a FREE FALL and chance of recovery is 3-5 years ??? CAN you make another video , and explain WHAT we should do and how we save our 437 K , at stage# 4 , if a "black swan event" happens in this " wheel strategy )

[@nvass99]

Selling isn’t lower risk. Many selling strategies are undefined risk, like selling puts for example. The stock can plummet. If you buy a put, your loss is defined by the premium paid. Also, if wheeling consistently outperformed, everyone would do it

[@JakeBroe]

No, you are wrong. The risk to the buyer is the contract expires worthless, that is a 100% loss on your investment. A seller never will risk losing 100% of their investment selling puts on the S&P 500 index. If the entire market goes to zero then society has collapsed and the only currency that matters is bullets and toilet paper.

[@cleaner1984]

@@JakeBroe And cans of baked beans (without it, you don't even need TP anymore :)

[@nvass99]

@@JakeBroe You're not taking into account the fact that buying options is defined risk though. The probability of success is far lower, however profit is theoretically uncapped to upside and max profit for buying puts is if the underlying goes to zero. Of course, with an underlying like the s&p, it's very unlikely that it will ever near zero. I like the idea of selling options, but if it was an easy way to outpace the market, everyone would do it.

[@joshd.6820]

Hi Jake, I'm glad you had that part at the end about buying further out of the money...i kept thinking "why not give yourself a better Delta with a slightly further OTM strike price to help avoid being exercised". Also, when selling CSP's, why not avoid the 3rd Friday of every month option expiry date so you don't fall into that market stall that typically happens (as you've explained) the 3rd Friday of every month. I realize trying to time the market is a fools errand, but seems fairly reliable that there will be a stall so why not ride through it with a dif Friday expiration date which "could" help you avoid being exercised?

[@rafaeleduardovalbuen]

He has talked about this before. He likes to have as much liquidity as possible which is why he always trades the 3rd Friday

[@JakeBroe]

Hey Josh! I was not trying to make this video any more complicated than it needed to be so I avoided talking about delta. As for options dates, you are correct in that if you are selling cash secured puts, you might want to avoid the 3rd friday (when the market sells off). However, if you are selling covered calls, then maybe you do want the 3rd friday if this helps you not be assigned.

[@arunsaibk]

@@JakeBroe when is the best time to sell cash secured puts if it is not 3rd friday?

[@carlosfelfoldi]

The risk of this strategy and having all your capital stuck seems downplayed. As what happens if sell a secured put at $100, but stock ends at $80 after 30 days? And never returns to a position that can sell a covered call and not be down a crippling amount? Broad indexes in theory should be less prone to this, but what happens with this strategy and ones capital if played during tech bubble burst or 2008?

[@JakeBroe]

Doesn't matter. I'm only recommending this on a broad index and even if the index goes down 20% in a year, I keep the Wheel Strategy going collecting premium. I'm not trying to convince you of anything in this video, lol. You can believe it works or don't believe it.

[@anthonygardner400]

@@JakeBroe How unhelpful is THAT answer! Geez.

[@carlosfelfoldi]

@@JakeBroe Didnt mean to come across as questioning, just more wanting to check have as many of the worst case sceraios thought through. For example, you mention you keep the wheel strategy going by collecting premium, but what happens if you cant sell a covered call that is above your breakeven? That is the risk trying to better understand. As found myself in a position with KHC in which that has been the case. Thank you for all the great content!

[@PritamDas_26]

It doesn't have to "return to a position" for you to sell CC. If you sold 100P and index is at 80 then you'll have cost basis of 100 (as you went ITM and got assigned). Now just sell 80 call for next month. Or maybe a higher strike / less premium depending on preference.

[@clydesdalelawn]

Awesome video… noticed for the break even you didn’t have the cost of the options included….FYI…anyways love the idea…👍

[@JakeBroe]

Thanks Brian! I appreciate the support!

[@m.a.7762]

Jake, instead of having over 400k, can't you just buy leaps deep in the money and sell covered calls on them which cost way less for 12 contracts?

[@JakeBroe]

I personally do not like the poor man's covered call option strategy, which is what you are describing.

[@AntonioInvests]

I love selling options 😁

[@rc2276]

This is awesome. Thank you.

[@JakeBroe]

You are welcome R C!

[@Retired-jr3qs]

Jake I am probably your oldest subscriber. I retired at 56 years old over 2 1/2 years ago. The TSP allows you to take withdrawals before 59 1/2 without penalty.

[@JakeBroe]

Thanks Retired 2019! I am speaking generally about 401ks since 95% of my audience are not government employees.

[@loukramer152]

Jake, I was wondering if you have back tested this wheel strategy on the S&P 500 to see if your gains would have outperformed a buy and hold strategy? The fact that you can get approximately 37% compared to ~10+% for buy and hold suggest there is some additional risk not being factored into the equation.

[@62orbetter33]

Jay, Jake, I was introduced to you by your options trading videos. You introduced me to the wheel strategy. Now I’m enjoying her you go in Ukraine war videos very much. But I’d like to know have you looked back here at the wheel strategy? What would you say about a differently? How is it lasted through the economic turmoil, etc.?

[@ichoudhury007]

Great Video Jake! Looking forward to seeing/following this strategy as you approach your retirement goal.s Love the transparencies, and as usual, very easy to follow!

[@JakeBroe]

Thanks MrChoudhury! I already have the funds to do this on 300 shares of SPY just in my taxable brokerage account, so I am 30% of the way to my goal. I'll keep people updated!

[@TR-lh9yz]

This is not a viable retirement strategy. When you're holding that short put you have unlimited downside risk. Very bad idea.

[@ichoudhury007]

@@TR-lh9yz if he’s selling cash secure puts or covered call if he’s getting assigned, the biggest risk I can see if the spy crashes way below his strike price or miss out on the gain if it goes to the moon. Otherwise it appears to be a steady income strategy. Do you mean unlimited downside in case of a black swan event if Spy goes way way down?

[@TR-lh9yz]

Well, let's use his example. SPY is at 437 and you sell the 437 put for 11/share. If SPY drops to 400 (like 8%), you are forced to buy it at 437 from your put. So you lost $26 a share (Bought at 437, it's now at 400, and you collected 11 for the option you sold.) So now you sell a call at 400 and probably collect another 10. SPY goes back up to 437, but you are forced to sell at 400 from the short call. So at the end SPY ended up flat after two months, but you lost $16 a share jacking around with the options. There's a lot of risk this guy doesn't seem to understand. An 8% drop and recovery is not a black swan event, happens all the time.

[@TR-lh9yz]

@@ichoudhury007 Sorry, didn't tag your name

[@entertainmentinternational1087]

I like this strategy except on csp further otm and if ur get assigned go atleast 5 dollars above the share price so u can make the premium plus 5 dollar share appreciation.. I like that better.. I just bought 400 shares Lrcx and sold 4 covered calls 8 dollars above 1 week collected 2400 plus if it passes 420 I make 8x400 3200 more...then wait for a pull back or maybe goto another stock on a red day that's a blue chip

[@dwalker6868]

Sounds like a plan thank you

[@JakeBroe]

Thanks D! Cheers!

[@Nix4me]

The wheel falls apart when you own the 100 shares at say 450 a share, sell the call at 451 and it falls to 430. Then you sell call at 451 again??? - if so then you get real crap premium. If you sell call at 430 and shares get called away, then you just lost 20 per share.

[@trinispur3787]

Jake, there seems to be a flaw in the strategy with regard to potential loss of capital if the particular stocks drops significantly whilst you sold a CSP. On CC’s any loss is just “potential” but you still would have to add capital to then sell another CSP. Have you done a video on the risks involved or would you consider doing one?

[@maccole8343]

Even if assigned who cares. What did the S&P do over time? Key to this is to pick a quality company! S&P and QQQ would be great for this if you have capital sitting around.

[@gandmemoney]

Jake have you been doing this all year I would love to see the one year challenge.

[@shb377]

One major flaw with this strategy is that if the price of SPY keeps going down continuously for a long period of time...we will not be able to collect enough premium when we try to sell covered calls at the price which we got assigned. So end up bag holding the stocks and pray some day, they come back to our cost basis.

[@62orbetter33]

Jake, if you were in the place where you were retired and you had $437,000 and you were investing in spy… Would you write any other options and other companies? Will you still play the option game with other stocks? Or would you stick to using the wheel strategy on spy?

[@sadguru2010]

Very well explained.

[@Jose_Lima]

Taxes: Could you please make a comment regarding taxes when doing this strategy on a taxable account? Thank you for the great video 👍

[@casienwhey]

Selling cash covered puts as a way to get a better entry price on a stock makes sense to me (if it's a stock you want to own). The problem with the wheel strategy is getting hurt either on a big move up or a big move down (suppose the stock misses on earnings or is acquired - either event could make the stock move. Whether I have sold a put or a call won't protect me from loss or share in the gain. Also when stocks go on a long run up or a long run down - meaning months or years - then the opposite side of the move in premium value could be very limited, so meager profits.

[@TraderJoe888]

Jake, great overview of the Wheel Strategy. Also, I love your Ukrainian War coverage. I am wondering if you had thought about continuously selling covered calls on high quality tech stocks that have been beaten down in 2022 (NVDA, MSFT, AAPL, AMD). Their WEEKLY premiums for At-The-Money Strikes are 2.5 to 3.0%, which means someone is basically paying you the entire stock price over a year or giving you a lot of money to live on while you maintain ownership of the stock (assuming you keep buying it when it is called away and immediately selling another covered call. Of course you have to be selective on the stocks and you want to have a basket of 8-10 stocks (including financials (JPM), industrials (CAT), but stocks you want to hold long term.