Lecture on the Wheel Strategy for Options Trading

Introduction

• Speaker: Seth Freudberg, Head Trader of SMB Capital's Options Trading Desk
• Location: Manhattan, New York City
• Focus: Earning consistent cash income from trading accounts through options
• Strategy: Wheel Strategy

Wheel Strategy Overview

• A technique for earning monthly cash from options trading
• Utilizes options selling to generate income
• Suitable for those seeking consistent monthly income

Basics of Options

• Recommend watching a basic options video if new to options trading
• Options involve predicting the price movement of stocks

Example: Tesla Options Trade

• Initial Context: July 6th, 2024 chart analysis of Tesla
  • Tesla price bounce after early year decline
• Options Chain Analysis:
  • Look for a put option with a Delta no lower than 20
  • Delta of an option predicts its price movement relative to stock movement
  • 20 Delta put option has ~20% chance of expiring with value (80% chance of expiring worthless)

Cash Secured Puts Explained

• Selling put options with the expectation they expire worthless
• Cash secured put: Obligates seller to purchase stock if put option is exercised
• Example: Sold Tesla 225 put option, collected cash upfront

Example Outcomes and Strategy Execution

• August Trade: Tesla sold off, options exercised, assigned Tesla shares
• September Trade: Sold covered calls against assigned shares
• October Trade: Covered calls result in shares being called away
• November-December Trades: Sold puts, expired worthless for income
• January Trade: Sold puts, expired worthless, consistent income achieved

Financial Results

• Total collected over 6 months: $8,128
• Average capital: $49,000
• Return: 16.5% over six months, annualized to 33%

Principles for Successful Wheel Strategy

1. Stock Selection:
   • Choose stocks you are bullish about long-term
   • Comfort with owning assigned shares is crucial
2. Strike Price Selection:
   • Sell puts at strike prices you are happy owning shares
3. Sell Calls Discipline:
   • Only sell calls at/above the price the shares were assigned
   • Avoid selling calls below assigned price to prevent realized losses

Additional Learning Resources

• Workshop registration for learning more options strategies
• Strategies include making money while waiting to buy stocks, income strategies regardless of market direction

Conclusion

• The Wheel Strategy offers potential income generation through disciplined options trading
• Importance of following disciplined principles for successful execution