The Wheel Strategy - Options Trading Explained

[@JakeBroe]

Give this video a LIKE to support my channel! Also check out my entire playlist on Trading Options here! kzbin.info/aero/PLscTZuOqKWIxSZzy4ObKWDznEsCot_1HU

[@atomikobigmac]

Never understood options until I found your channel! Thanks a lot

[@JakeBroe]

Glad I could help Eric! Cheers!

[@tonytt7698]

​@JakeBroe If a stock is trending up, is it better to sell 1 month covered option way out of the money or cash secured puts at the money

[@zuojane3805]

watched several times. really helped. already made few extra bucks by doing cash secured puts and selling covered calls.

[@GarbageGoober.]

Thanks for making this video. Ive been interested in running the wheel and recently watched some of those Robinhood WallStreetBets types on KZbin talking about running the wheel on options contracts that expire in less than 10 days because you get to do it more often.Your explanation of doing 30-60 day contracts using theta decay to your advantage and then getting rid of the contract when you get 70% value out of it is just so much more galaxy brained that it blew my mind. Hats off to you Jake for explaining how to do things that others talk about in a much more efficient and profitable way. As a relatively novice investor, my mind has been blown.

[@JakeBroe]

Thanks Will! Glad I could offer you a more sound explanation that the WallStreet Bets folks. Remember that it costs $0.65 to constantly be getting in and out of these contracts. Adds up if people are constantly selling 1 week contracts.

[@Aquilesb]

Your channel is the best I've seen explaining options, kudos

[@JakeBroe]

Thanks dralerma! Hopefully someday the KZbin algorithm agrees with you!

[@Aquilesb]

@@JakeBroe I know, they always try to push the same options video

[@stacks353]

One of the best Wheel Strategy videos I have seen.

[@JakeBroe]

Thanks Stacks! Hopefully the algorithm agrees with you!

[@Nice-Y]

This is by far the simplest explanation of options comparing to some of the other videos that try to explain this! 👍 1. If one sold a BAC Put at $38 for $74 and got assigned for 100 shares, then later sells a call at $40.50 for $72, wouldn't the math be: 74 + (72 + 4050 - 3800) = 396 (10.42% return of one complete wheel spin that started with $3800) 2. 14:35 Are you choosing $40.50 instead of $40 because (4050 - 3918 + 72) > (4000 - 3918 + 90) ?

[@raymondho8497]

I am a Hongkongers & English is not my mother language but Jake 's presentation is so good that I fully understand what he said & how the wheel strategy really work.

[@ALS09]

This is the best vid i’ve watched about the wheel strategy. I finally understand why people buy to close rather than wait until expiration. Thanks!

[@JettyLife23]

Jake, you have THE BEST explanations. Your covered calls video was the video which made it "click" after watching many videos. Thanks for your work!

[@USis1]

Watched a lot of channels, he is the best at not adding any useless fluff to his videos like all rest do.

[@theclimbto1]

Okay, let me test my Math here on that 13:40 Formula. I put up 200 Collateral to Sell a Put for SNDL at a 2 Strike. I got a Premium of 0.06, for 6.00. This Expires in 4 Days, as the Call Options is Weekly for SNDL. (6 / 4 X 365) / 200 = APY 6/4 is 1.5X365 is 547.5/200 = 2.7375... 273.75%? Did I plug the stuff in right and proper?

[@richardthorne2804]

Nice overview. I took early retirement and invest in individual growth dividend stocks and sell covered calls on them strategically and i also do a separate wheel options strategy in my portfolio margin account. I belong to several investor discords, and the biggest problem I see is to often traders or investors do not have a large enough account to do the wheel strategy. If this is the case you’re better off accumulating a nest egg first. Of course, if your goal is just to get assigned the shares to own long-term that’s fine but if your truly doing the wheel for cash flow, you need a large account.

[@godsvengeancedm]

Thanks Jake. I been selling puts thanks to your videos and haven't been assigned yet but I plan on selling a covered call for the 1st time when I do get assigned 1 day.

[@JakeBroe]

Awesome JDion! That's pretty exciting!

[@stevevanzandt1655]

Good presentation. Strategy works pretty well in a bull markets; not so much when stocks are declining.

[@casienwhey]

I've watched a lot of videos on the wheel strategy. They all sound great in principle. Here is the issue I have not heard anyone talk about yet. If you are trading this strategy in a taxable account, you are going to have to deal with the wash sale rule sooner or later and it's a major pain the ass from an accounting and record keeping perspective. So, I'd keep that in mind before you start actively trading the same or similar securities.

[@007mercucio]

The first of 3 videos that I watched which amply explained what the Wheel was. GJ!

[@jacekfz99]

Thank you, one of the most clear explanations of this strategy I've seen, with some great real life tips.

[@JakeBroe]

You are very welcome Jacek! Cheers!

[@jacekfz99]

@@JakeBroe the tip to aim for 0.3 delta was particularly helpful, that helps so much to figure out what type of put or call to shoot for. Thank you once again for all your efforts to educate us.

[@matthewsherwin8741]

This is probably the best explanation of the wheel strategy on KZbin! Thanks for working so hard to educate and help people.

[@JakeBroe]

Thanks Matthew! Hopefully the algorithm agrees with you and decides to share it with people!

[@RD-jp4zs]

Thank you very much for the explanations. I've been watching you for 2 years now. From credit cards to options. Thank you very much for the great video. :)

[@itsarchi5968]

This is the moment that I wish, that I had like $30,000 so I can do this. Great video Jake

[@JakeBroe]

Thanks Dave! Someday soon! You'll get there!

[@rhanna619]

If you sell a put and get assigned but stock price falls a lot. Would you sell the CC at or near cost basis so you can make up the loss before shares taken away? Also of your stable stocks to run the wheel do you have a favorite?I was thinking VZ. Thanks.

[@JakeBroe]

Hey Richard! If you sold a put and was assigned the stock. Then I would just sell the covered call and stick to the game plan. You might get unlucky and lose your shares below your cost basis, but this shouldn't happen often unless you are just really getting unlucky. VZ is good, but these days I mostly just stick to selling options on SPY.

[@drycycle]

I’ve been running the wheel for awhile on a handful of stocks. I’ve been assigned a couple times. I use a spreadsheet to track my debits and credits so I can track my cost basis. Always seek above your cost basis, if possible. If you follow that rule, it’s hard to lose money, unless the underlying really tanks. It’s fun to watch the cost basis fall over time, eventually I’ll own some stocks at a negative cost basis!

[@art_without_borders]

Absolutely agree about not rolling the options. It is no more than a realized loss when you buy to close with a higher premium. If you are rolling a CSP, you are most likely dealing with a stock that is falling anyway. Don't chase your tail. If you are in a situation where your CC is about to be assigned but you want to keep the stock, then double the number of shares for your stock before it gets to the strike price, even if you have to borrow money for that.

[@JakeBroe]

Solid advice about CCs! I like it Mila!

[@alfredroberts745]

Great explanation! I learned a great deal from this video. Thanks for posting.

[@bunnyz1051]

Thanks for sharing, I have been using this strategy for a few month, but sometimes it make me big loss because I often sell puts on those high risk stock, like FSLY, U, BYND, just wanna collect higher premium . Now I'm gonna switch to big cap names .

[@JakeBroe]

Yep! You want predictable, large cap, lower volatility stocks so you don't get blown out if a stock drops 30% or something crazy. Best of luck Bunny!

[@daveclark6324]

Thanks so much for the information. I thought that I understood the wheel strategy, but you helped to clear up one or two points I did not consider. Great video - thanks! 👍

[@JakeBroe]

Thanks for watching Dave! Glad I could help clarify this great options trading strategy!

[@Aoni6666]

My favorite Strategy of all times, yeah I am not a fan of high risk. I wanted to add you can always buy back the options, I tend to do this when I am 50% or more in profit and the stock has a day or 2 before it closes. Market is so crazy so things change often.

[@discolemonade7716]

Which equities do you typically choose to sell puts on?

[@JakeBroe]

Hey Carmen! Yep, once you have more than 50% of the premium, it makes sense to just buy it back and then sell another one farther out at a different strike price. Keep draining that theta value from the buyers!

[@Aoni6666]

@@discolemonade7716 Hi, sorry for late reply but usually stocks I don't mind owning, CHPT, CCIV, NIO are some of my personal favorites.

[@BuckInfinidy]

NIce! This is what I was working out in my head for a plan but this video put it all together in black & white steps. Thanks !

[@nicks8459]

Great explanation. The wheel works pretty well unless you get assigned a stock, sell a CC, and it drops on you. Then you have to decide whether to sell a new CC at below your cost basis or wait it out for it to come back up in value.

[@JakeBroe]

Exactly Nick! Hopefully it was a good stock that perhaps you are comfortable holding until it goes back up.

[@myst3r1ous69]

once assigned the CC are useless looking at APPL (exp: 0.05$) and its peanuts, only the CSP are lucrative, but not currently.

[@richardcruz207]

Hi Jake, I love your explanations and your visual aids. I'm new to options trading and your simple explanations have made my journey amazing. LOVE LOVE LOVE your videos. Especially on Fidelity since this is my trading platform. Keep up the amazing work you are doing...THANK YOU 🙂🙂🙂🙂🙏🙏🙏🙏

[@moxiangmingxin]

Hi Jake, in the wheel running process, should I wait for a down day to sell put and an up day to sell call in order to get more profit? What do you think? Thanks.

[@JakeBroe]

I think so! I think it is worth waiting a couple days (2-4) for either a red day or a green day to try and maximize your calls and puts!

[@moxiangmingxin]

@@JakeBroe Thanks man!

[@jgoemaat]

This is a lot of great information this video. Thank you so much for sharing not that long ago people have to scour all over to find this much good information so your experience is really helpful to others!

[@wymandyer6261]

great lessons Jake and you really broke it down where i could get it,,,thanks

[@behrensf84]

I think that you should also point out, that if you have enough funds for multiple contracts you should have half the money in covered calls, and half the money in cash covered puts. Two hands on the wheel... If you’re assigned the call and the stock rockets up, you only lost opportunity cost. If the stock craters on the cash covered put, you may not be able to sell the stock above your cost basis for a long no time...

[@JakeBroe]

That's solid advice Felipe! I like it! Win-Win regardless of what the stock does.

[@frontpineapple4489]

Another excellent video. Thank you Jake!

[@JakeBroe]

Thanks pineapple! I appreciate the comment!

[@hamsterjohn]

Jake Broe=best bro(e)

[@JakeBroe]

Thanks GB! Cheers!

[@m.marena2998]

Great video about the wheel strategy, many thanks! What I miss a bit are the risks involved, for instance when the underlying stock goes down rapidly after selling put options. In this case it might take quite a long time to recover the losses by selling call options. In such a scenario, I wonder whether stop-loss orders could help to mitigate the risks. What do you think about? Any feedback greatly appreciated.

[@christinedavis4402]

I got it! Thanks Jake. Love learning about options with you.

[@JakeBroe]

Thanks for watching Christine! Glad you are enjoying the videos!

[@BigBoyOtero]

Great video. Jake. What are the Cons. Seems to easy. Everyone i know would take 20% APY in a minute. Is the drawback the capital needed and short-term capital tax rate on covered call. Are there other cons?

[@JakeBroe]

Hey Rafael! I think the biggest drawback is that people try to sell options on crazy volatile stocks like Tesla and Nio because they have high premiums. Then when the stock moves 30% against them they get blown out. Which is why I recommend running on large cap, boring, stable stocks that won't swing wild one direction or another. Other than that, no. It's just selling puts and selling covered calls and these are both low risk options plays if done on quality companies.

[@Ca11meK1utch]

Hey Jake, what are your thoughts on weekly options?

[@JakeBroe]

Hey Brice! If you want to sell weekly options, then it might be a lot more for for you for not any greater of a return. If you are looking to buy weekly options, then that I do no recommend. There just isn't enough time for the stock to break in your favor.

[@sreke77]

An other wonderful video! Just curious ..is it because you think SPY has high P/E, as to why you don't have it on your list of recommended large cap stocks for the wheel ?

[@JakeBroe]

Hey Srikrishnan! The share price for SPY is currently $414. Which would require $41,400 in collateral to run the Wheel. All the large cap stocks I listed have share prices under $100, so they are more affordable.

[@sreke77]

@@JakeBroe Got it ! Btw I have been selling puts on 2 SPY contracts with the intent to get assigned and do the wheel.. but market dropped today by 5 % lol ! I did not want to get assigned at such a significant drop , however the market presented a fantastic opportunity to roll over at a significantly high premium that's unheard of for a 420 strike for as low as 2 weeks out ! If we keep playing the wheel to our advantage there is immense potential for passive income

[@sreke77]

Correction: I did not want to get assigned at 420 (that was my strike that was going to expire today ) considering the market dropped significantly, hence chose to roll over that eventually led to higher profits

[@libertywolf625]

Quick question on the Cash-flow Wheel Options Strategy. What would you say is a realistic monthly ROR range on Wheel plays? Does 4-8% monthly sound about right most of the time?

[@mjkeith8748]

I've watched several of Jake's videos and the explanations are all VERY easy to grasp. HUGE Thumbs Up. My only question is, Jake, have you actually tried doing much selling of covered calls or secured puts? How did that go? it seems like you are BUYING covered calls rather than SELLING them -- why? That would make a good video.

[@JakeBroe]

Thanks MJ! I sell cash secured puts (hoping to not be assigned) in my Fidelity account with pretty good success. I don't make videos about it because the returns I get are as dramatic as buying options, which yields higher returns.

[@dagobertduck4366]

how would you roll puts/calls down/up to avoid being assigned? i know you dont recommend but still interesting to know

[@katoneill1929]

Thank you for these videos! I’ve learned so much!

[@behrensf84]

Hi jake, one question about implied and historical volatility, when you sell a covered call you want the implied volatility to be higher than historical volatility. Would the opposite be true for selling a cash secured put?

[@JakeBroe]

Hey Felipe! If you are the seller of a contract (calls or puts), then you want volatility to be higher because you can collect a great premium. Yes, you assume more risk of being assigned, but as long as you sell contracts on stocks you like, this shouldn't be a problem.

[@villa50bis]

Thanks Jake, am now using this strategy, you explained it very well. I guess partly in combination with your recent video on how to never lose money, I have decided to apply this strategy to SPY rather than any particular single stock. My logic is that SPY is better placed to cope with “little” events that may affect a single stock and long term I would not be upset to be a bag holder. Other than the larger capital requirement, do you see a problem with running the wheel strategy on this ETF?

[@nicholasfrillman42]

So the market value is what I’d need to back out if I wanted to buy to close and keep my shares to sell another covered call?

[@tristonwebb7045]

I know you talked about it not making sense to do finance anymore on your channel but would enjoy that 2nd channel on finance being made

[@zk1476]

What happens if the stock is dropping a lot after assigned? Let's say BAC dropped a lot and your CC is 70% profit so you close it. Now, I need to sell a new CC, do I choose a lower strike price? Or should the strike should always at or above my cost basis.

[@JakeBroe]

Hey Lebron! This is exactly the risk of the Wheel Strategy or selling any cash secured put. Ideally you are doing this on a stable, predictable large cap stock that won't drop dramatically. If it does for whatever reason, you might have to eat a loss to get out of it. But ideally this rarely happens if you deal with quality stocks.

[@vichart011]

What is a good safe dividend etf to trade the wheel on ?

[@dannykantar]

This is great! Thanks for the awesome video!

[@JM-is4mv]

Another good video, Jake 👍, very clear strategy explained, with step by step maths to walk through, will give it a try, and see how it goes 👌

[@JakeBroe]

Awesome J M! Let me know how it goes!

[@craigchambers4183]

Ok, Jake, I have watched and written notes down on trading covered calls and cash secured puts and feel ready to start once I set up my accounts for options with Fidelity or tastyworks (the latter seem solid, but I will research them more because I don't want to put my Roth IRA with them and they go bust). I have a question that I have not heard answered anywhere from anyone, so I'll ask you! In either case (call or put), when we say it expires in the money, does that mean that on the day of expiration the strike price must be met, or does it mean that it was met at anytime during the trade window? What if I do a covered call and the price hits the strike price halfway through, and then falls below? (Or opposite for cash secured put, rises above?) Do I have to sell (call) or have to buy (put)? Is the expiration day considered the day it hits the strike price, or the day the contract expires? Thanks so much for this series ~ I am not confident in the stock market's direction right now, but need to have a low risk way of getting 10% or more to deal with actual inflation (much less if the Fed reluctantly agrees we have it).

[@JakeBroe]

Hey Craig! "What if I do a covered call and the price hits the strike price halfway through, and then falls below?" Then it doesn't matter! It only matters at expiration. People only (should) exercise the contract at expiration and that only makes sense to do if the contract is in the money.

[@boulderdentaldesigns2076]

Thank you for the video. I am trying to run the wheel strategy and my first covered calls and cash secured puts I was earning premiums and now it seems like it is costing me money to run these. I don’t get it. I didn’t do anything differently. I did get assigned some shares and I sold some shares. Went back to run options on those and I am now paying to sell the options for some reason. How is this possible?

[@spookyspork3086]

Great channel Jake!

[@matthewsherwin8741]

Thanks very much, mi amigo! I’m not feeling well tonight but will review this tomorrow. Stay safe and strong 💪 💪💪

[@JakeBroe]

Thanks Matthew! Feel better!

[@matthewsherwin8741]

Thanks, Jake! Gracias!

[@j_yh]

Awesome explainer. 👍🏼

[@JakeBroe]

Thanks J YH! Cheers!

[@joejoy8958]

Thanks for a very informative video. Can you show with a specific example on how to do "Buy to Close" ?

[@JakeBroe]

Sure thing Joe! Check out this video: kzbin.info/www/bejne/mXfWgZempq94ocU

[@behrensf84]

One question, if you have both long term and short term capital gains on a stock you are selling a covered call, how do you make sure the 100 shares sold are from the long term gains bucket if you get assigned?

[@BigBoyOtero]

Fidelity allows you to select the tax lot (stock).... I'm guessing other brokerage firms would allow you to do the same

[@JakeBroe]

That's a good question Felipe! I think when you sell the call there should be an option to sell how the stock would be sold for the strike price you chose.

[@behrensf84]

@@JakeBroe I called up vanguard to ask, and they told me that if you get assigned, you have 1 business day to call them and tell them which shares you want to sell, or it defaults to FIFO. There’s no way currently to do it through the website :(

[@AntonioInvests]

Woohoo I love the wheel strategy 😁

[@JakeBroe]

It's pretty great!

[@clue3092]

Jake……fantastic job!

[@ADLittle07]

hey, I wasn't able to find a video where you rolled a option with Schwab and was wondering if that was pretty easy or if they provided that feature? I have vanguard and they don't was consider a switch to Fidelity or CS for ease of use. have any suggestions if mainly trading options?

[@PrinceCbass]

I have a scenario I want to give to confirm I am understanding this properly. I am looking at Ford (F). Current price is $15.41 and I am Selling a PUT with expiry 33 days out Strike price is 13.5 Bid/ask is .20/.22 IV 48.3% Premium is ~$21 Assuming that on the same day of the contract, the stock price plummets to $13.51. I would then "buy to close" which is BUYING a PUT with the same strike price of $13.50? Would this be Buying a PUT "ATM"?

[@GilbertFleming]

Hey Jake, how do I access the members only custom discussions

[@JakeBroe]

Hey Gilbert! At this time I do not have a discord yet. I will be looking in to this at some point this year. Thanks!

[@GilbertFleming]

@@JakeBroe Hey Jake it would be interesting, maybe valuable? To have a discussion column where all of your loyal fans can share ideas back and

[@robertthompson5908]

Great explanation!

[@JakeBroe]

Thanks for watching Robert! Cheers!

[@larrytan9176]

hi just to clarify if say eg, i brought bac at 38 strike and got assigned. then it drop to 35, i should sellcall at 39? or what is the recommended price. thank you so much.

[@freddiejonesy6168]

Excellent video!

[@JakeBroe]

Thanks Freddie! Cheers!

[@freddiejonesy6168]

@@JakeBroe Cheers!

[@cjoshmartin]

What does it mean to buy to close? Jake says that in all his videos but I don't understand

[@JakeBroe]

Hey Josh! Whenever you enter an options position, you are "selling to open" calls and puts and if you want to exit the position before expiration, then you must "buy to close" those contracts back. This will cancel out your position.

[@ACR4008]

Great explanation

[@SlickNickster]

Thank you!

[@JakeBroe]

You are welcome Nick! Cheers!

[@stevenbi7495]

Hi Jake lol! The stock is down crazy today!

[@JakeBroe]

It'll all come back! This is a fake out!

[@stevenbi7495]

@@JakeBroe See Jake, everytime when you're saying the challenge would be over people would start to have huge sell off so that you'll make more videos 😂

[@Thetatraderz]

Great video. I do this all the time

[@JakeBroe]

Thanks Teacher! I'm really enjoying this strategy at the moment!

[@sammeme7452]

Great video...thx

[@TC-kn9kk]

what to do if the stock price moves significantly lower, the value of your holding and call premium at your desired strike is reduced

[@alexuslentz7141]

What happens if the stock goes way down and you get assigned the shares then when u go to do a covered call your break even price is so far away that it’s not even worth it to collect the premium?

[@JakeInvest]

hi jake, im jake, i like ur videos jake

[@frankdepena232]

good stuff

[@cyril_ogude]

Would you run the wheel on only stocks you want to own long term or not?

[@JakeBroe]

Yes, I recommend only running the Wheel on large cap stocks that are relatively stable and you would want to own long term anyways should you be assigned.

[@headlibrarian1996]

If 30 day contracts are good, can't you capture more premium with weekly expiration?

[@JakeBroe]

The problem with weekly is you are paying more ($0.65) more often to get in and out. Your account also requires more maintenance checking daily. You also are more likely to be assigned should the market just experience a wild up or down week.

[@mikeh6981]

How has this strategy held up in the 2022 down turn? I imagine that you are getting crushed. I assume you would have gotten assigned the Put early on in the year. From that point you would have sold covered calls but with the market dropping no assignments. So you have kept selling them at lower and lower strike prices all the way down. So by now July 2022, you are holding SPY @ close to the high and under water minus the covered call premiums collected. Also in an up market like 2021, it seems to me that your bankroll would soon be too small to cover all the naked Puts since you will always be increasing your strike price to keep up with the stock price. It seems to me that you would have to suspend option trading during high market volatility to avoid both of these issues.

[@chrisbrown8748]

I just want to hand all my money over to Jake and just let him do all the work lol

[@JakeBroe]

Haha, I appreciate that vote of confidence Chris!

[@behrensf84]

is it that easy to make money with options? I should quit my day job...

[@MT-qq1rq]

I have the same thought. If I can make replace my salary, I will trade option FT.

[@ciborg86]

It’s a good side hustle at least

[@JakeBroe]

Same! I'm thinking about running it as an experiment starting on Jan 1 of next year. I'll start with $100,000 and see how well I can do. If I can make $30,000 ~ $40,000 by doing then yeah, what do I ever need to do working a day job again? haha

[@ciborg86]

I’ve been experimenting since the first of March with $10k. March and April I made just under $350 each month. On track for the same in May.

[@behrensf84]

@@JakeBroe you know, it’s not quite as easy... I did some calculations to account for the capital gains tax, and once I factor in the risk of getting assigned, I would lose money overall to taxes on covered calls because I bought my shares a really long time ago... I would have to start with cash secured puts...

[@maxjoey197]

Are you skill doing the wheel now on February2023

[@cyril_ogude]

So basically this is a high yield saving account on drugs?

[@JakeBroe]

Pretty much! haha

[@alchemista2]

What can go wrong here? You're saying 20% APY, which must have risk or everyone would be doing this. Is it large market movements that can get you assigned and then continue losing money on the held stock before you can recover with a covered call? (or vice versa)? There must be some gotcha here, as promising 20% APY as a baseline is too good to be true.

[@davechu3234]

Still confused. Ngl i get more confused watching yout vids

[@vark]

Jake. you are awesome. very informative. but no offense...you look a little like Eddie Munster.....thats how old my ass is.

[@JakeBroe]

Haha, no worries! Cheers VARK!

[@StefanReich]

How has humanity come to do all this useless math instead of producing actual things or services?

[@JakeBroe]

Well, we still produce a lot of actual things and services... so much so that there are all these extra people sitting around capable of doing useless math.

[@timehealthfit1891]

You light up the room, want to be youtube friends?

[@JakeBroe]

Thanks THF! Cheers!