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

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How It Works
The Wheel Strategy is a systematic way to sell option cash-secured puts and covered calls as part of a long-term trading methodology.
In essence, you keep selling options on stocks that you are bullish on, to generate monthly income.
The basic methodology is very straight forward:
- you sell cash-secured put options on a stock until you get assigned and receive the stock shares
- you sell covered call options on the assigned stock until it is called away and you have to sell the shares
- you start again and repeat the cycle
Basically, you repeatedly sell cash-secured puts (CSP) to collect option premium. Should you ever get assigned you have to buy the stock at the agreed price. Then while holding the stock you sell covered calls (CC) on it to receive more premium. Once eventually your stock gets called away, you have to sell the shares and can start again going back to sell more cash-secured puts on the same or another stock.
The Wheel Strategy will pay you to open a long position, allow you to collect dividends and benefit from the stock price appreciation while holding the stock shares, and finally pay you again to close out the position.
The overall process starts selling a cash-secured put option on a stock and collecting the related premium. You should select stocks that you are confident to buy at a specific price, and eventually hold over the long term. For each option contract sold you need to be willing and have the funds available to purchase 100 shares of the stock at the agreed strike price.
If you are assigned on a stock then you will look to sell an OTM (out-of-the-money) covered call with a strike price higher than its cost basis. If the stock that you now own goes higher in price but the covered call is not ITM (in-the-money) at expiration then you profit from the premium collected and capital gains over the entry price.
So while holding the stock shares you can generate a new source of income by selling covered calls multiple times for more premium, which will also lower the cost basis of the stock in case all these call options expire worthless. You keep doing it until the call option stock goes ITM before expiration, and eventually, the shares get called away from you.
Normally you want to avoid selling a covered call with a strike price lower than its cost basis, as that will bring a loss in the overall wheel trade. To ascertain that you need to keep track of all the premiums received plus the stock appreciation.
The Wheel Strategy is great for generating semi-passive steady income consistently throughout the year, with lower risk than many other option strategies, and usually widely exceeding the results of a simple Buy&Hold strategy.
On top of stock appreciation it looks to reduce the cost basis of your favorite stocks by collecting option premiums from the sale of cash-secured puts and covered calls, and when possible also dividend payments.
The Wheel Strategy will require proper stock selection and a lot of patience, but if done right will generate regular and consistent returns, month after month.
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#TradingOptions #SellingOptions #WheelStrategy
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DISCLAIMER:
This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.

[@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?

[@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...

[@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.

[@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.

[@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!

[@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

[@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!

[@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.

[@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.

[@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.

[@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!

[@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.

[@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.

[@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

[@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?

[@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

[@mysorep]

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

[@JakeBroe]

Very true! Cheers Prasad!

[@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.

[@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.

[@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.

[@joecoupon8299]

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

[@JakeBroe]

Thanks Joe! Glad you like them!

[@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!

[@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!

[@viktoriiawahl8578]

Thank you for making this video!

[@JakeBroe]

You are very welcome Viktoriia!

[@alanlajoie7307]

Love the video Have one question what you do if the put is assigned well below the strike price what strike price would you use to sell your call example sell SPY put today one strike out of the money at today strike price 415 for $14.70 if SPY moves to 410 and you are assigned at 415. do you use the 415 as your break even when you sell your call ?

[@alanlajoie7307]

Love the video Have one question what you do if the put is assigned well below the strike price what strike price would you use to sell your call example sell SPY put today one strike out of the money at today strike price 415 for $14.70 if SPY moves to 410 and you are assigned at 415. do you use the 415 as your break even when you sell your put ? Thanks

[@michaelbaffes5897]

Thanks for the video. Do you run into any T1/T2 problems doing this? Or are those not a factor due to margin?

[@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?

[@commutebiceps781]

New place coming together nicely Jake!

[@JakeBroe]

Yes it is CB! Cheers!

[@Truck--kun]

For those with less funds would you say IWM is a good substitute for SPY? Mainly asking bc I have enough for 1 CSP of IWM and was thing of wheeling it until I get enough funds to upgrade to QQQ, and then SPY ifI snowball up to it

[@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

[@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.

[@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!!

[@jasonnysacleomedes5084]

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

[@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!

[@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.

[@wannaknow4184]

Another great video Jake. Thanks

[@JakeBroe]

Thanks wannaknow! 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!

[@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.

[@lizlemon9632]

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

[@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.

[@josephc5493]

Interesting video. Does this scale longer term as the market rises? For example, let's say SPY rises 20% is now sitting at $525/share (your $437 example +20%). Now you don't have the capital to run 10 calls/puts per month, you can only do 8. Or do you think the option premiums at $525/share * 8 contracts will still generate the same amount of income?

[@EastAfricanSniper]

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

[@davidpearce4838]

Great explanation Jake. Thank you. 🙂

[@mikhailtrifonov4980]

Hi @Jake, I want to try options, but I do not have enough money, Fidelity give me only 1 level of trade option(Covered call writing of equity options.) Do you know, how can I improve my account to be able to use options? Maybe be exists some stocks with lower price, that growing like sp500?

[@gandmemoney]

Excellent as always

[@Whoisbu89]

how do you know which stocks/etf's are good for selling covered calls? im very new to options trading and would like to start so im doing just covered calls for now.

[@options888]

Hey jack how is your exit setup for option selling? Like when do you take profit and cut loss, in terms of percentage thanks

[@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.

[@62orbetter33]

Just to let you know, I opened to sell a cash secured PUT. expired feb 18 and I earned $1078. I'm thinking of doing this again. Since times are shaky (war in Europe? Fed raising interest rates? etc) Would it be less risky to invest in 2 week Puts instead of 4 week puts?

[@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.

[@ericnazario8486]

Awesome info!

[@imjay8466]

great explanation I've been learning option myself for the last year and this so far my favorite strategy ... have you try naked put option? and poor man covered call?

[@dvee1983]

I have tried to do this for years on different stocks. Haven't had too much success. Do you always sell at the money or if assigned, do you always keep your short call above your purchase price minus any premiums received? The volatile markets make the premium great, but are hard to manage. Are you having success doing this? Thanks so much.

[@japancycler6691]

So if I understand correctly i would always be selling or buying near the money. What happen when we see the S&P drop like it did in the past few weeks? If I would have sold a put when it was at 480 collected the premium but it is now the S&P is trading at 435. I would have lost 45 (or 4500 on one contract) minus the premium i collected to offset the loss. Should I be selling a call now at near the money at 435 and continue to execute the wheel at the lower price in the hope that it will go up sometime? This seems to be the issue when the price drops on everything as it has over the past several weeks. Thoughts? Great video by the way and a very clear explanation. Thank you.

[@rc2276]

This is awesome. Thank you.

[@JakeBroe]

You are welcome R C!

[@vinnyvidivici5930]

Love the video! Quick question, why do this with SPY and not QQQ? Or is that simply a matter of personal taste/risk? Thx!

[@sweis12]

I just got an audiobook about options. Im gunna follow your advice.

[@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.

[@TopRetroCommercials]

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

[@domonkoskovacs837]

Hi Jake, this short video was great again, as usual. What happens if you are assigned, have to buy SPY at 437 and then, or before it falls to 400? Where would be the next call to sell? (To keep the wheel running...)Thanks

[@thenewfire]

Thats up to you. Some people just always sell the Call At The Money. Meaning you can lose capital when it gets assigned. But you get a very good premium and then continue wheeling. I personally put my strike price at the exact price I purchased. Sometimes it takes me much longer to get out of the equity, but if you don't mind owning SPY, that is fine. Practice a few strategies on ToS. I would set a strike about 435 though using your example.

[@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!

[@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...

[@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 :)

[@luisduque4506]

Hi .the credit that you get up front for selling a cash cover put where it go ?? Or they hold it till the expiration day to credit it to the account ?? Thanks

[@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!

[@Mutax2007]

Jake, do you buy to close earlier to free up buying power?

[@kevinkinsella7815]

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

[@JakeBroe]

Thanks Kevin! Cheers!

[@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!

[@waleedshaarani1897]

You’d make such a great professor!

[@DionMJulien]

Excellent video

[@Kindafu]

Jake! What do you think if on the CC side of the ☸️ i sale 1/4 of my 30-day contracts every week so i can take advantage of price increases? (obviously bull market hypothetical)

[@ctkmobambi]

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

[@dannyintokable]

Does the wheel strategy trigger a wash sale? great video..thkx..

[@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!

[@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 )

[@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.

[@pedropolanco8576]

Hey Jake, always appreciate your videos! What's been the historical (say 30 years) return for this strategy after taxes?

[@r4rasa]

If you always win you can make good returns on it but its not the case always

[@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

[@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?

[@jonathanforbes9427]

How do you feel about using this strategy on a cheaper etf so not as much capital is required?

[@dotonepercenter2203]

What deltas you use for selling puts and calls?

[@MindTapt]

Hi Jake.... When you retire and start applying this strategy, what delta would you be looking for when selling your puts/covered calls?

[@thenewfire]

Looks like he was doing them both right ATM.

[@redexit0707]

Jake, in a cash secure put and covered call, if the option is not excercised, how do you close it? Thank you for your time and attention?

[@JakeBroe]

If it is out of the money, then it expires and goes away. You don't have to do anything. If you want out of it before expiration, then you have to buy to close it back.

[@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?

[@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!

[@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

[@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.

[@lucygoose6052]

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

[@hgrandhige]

In another of your videos you recommend exiting an options contract before expiration. I believe that was on Vertical spreads. So in this strategy, I'm assuming you always hold to expiration? Or would you ever close the position early?

[@62orbetter33]

How do you feel about spld? Smaller nav than spy

[@ginza1422]

A question for options experts in here… selling close to at the money PUTS to get higher premium. Is it possible that if SPY goes a little under the strike price, you may get assigned any time? or yiu only get assigbed at expiration when SPY is under stock price? Also, if you get assigned sooner than expiration, you dont get the entire premium right? just partial premium?

[@Cognosapien]

Great video as usual. Thanks for explaining why anyone would buy your covered call. It seems like easy money to sell covered calls, so I was confused about why anyone would buy. If you're making easy money, somebody must be losing easy money. Wouldn't it make sense to invest in a leveraged ETF that just sells covered calls for me? Or do those not exist for some reason?

[@UncleDanMoney]

Leveraged ETFs buy daily options and suffer from high theta. Never buy those long term. Go look at a ten year chart. Selling covered calls after you have lost on your puts and got assigned is just locking in losses. Won’t help you retire.

[@sadguru2010]

Very well explained.

[@billyrbii]

What a great strategy! This really looks good.

[@JakeBroe]

Thanks Donnie! Cheers!

[@ACR4008]

The wheel is great, but I have enough problems using it on small potatoes stocks rather than SPY that I would not consider relying and retiring on income from this strategy. However, I would love to see you do something like this. I plan to do it with 1 contract at a time at some point.

[@TheEnVious17]

Thanks Jake

[@JakeBroe]

You are very welcome Kevin! Cheers!

[@vinhdao7582]

Hi Jake , it is very nice your solution. I have a question, will you close the contract early if you got over 70% profits either sell put or sell call ? Or you just leave it expired 1 month as it is . Thanks

[@thenewfire]

Close that puppy early. The next 30% can take just as long as the first 70% took. You can double how often you get to sell this way and twice the contracts at 70% profit = 140% profit.

[@LMF-ct4lt]

Would it make sense to trade between 3 to 5 different stocks? The chance of all of them dropping below you cost basis is much lower.

[@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