in this video our head of options trading teaches you how to implement What's called the wheel strategy which gives you the potential to make $1,000 a month in trading income I'm Mike Bella Fury and we're a longstanding proprietary trading firm located in New York City since 2005 and now Miami as well and proud to have developed numerous consistently profitable Traders watch take notes and learn from our prop firm so you can grow your trading account hi I'm Seth freudberg and I'm the head Trader of SB capitals options trading desk here in Manhattan and one of the most frequent topics that come up when we're talking to Traders and investors that contact us from all over the world is the question of how to earn consistent cash income from our trading accounts each month and with options there's a time- tested very effective technique for earning monthly cash from your trading account and that's exactly what today's video is going to be covering so if that sounds like something you'd like to know a lot more about than stick around because I think you'll find that it's going to be rewarding to learn this extremely simple options trading technique now before we get into the options strategy we'll be teaching you in today's video if you're absolutely brand new to options trading and you don't know much about how options work we put together a video for you to understand options Basics and if you click the video appearing on your screen right now it will lay out the groundwork for you to understand the option strategy that we're going to be sharing with you in today's video Then when you're finished you can come back and watch the rest of this video to illustrate how the strategy Works let's head back to July 6th of last year 2024 which is the first Friday of that month of July and we'll take a look at a chart of Tesla through basically the first half of the year and as you could see Tesla's price was down massively at the beginning of the year nearly cut in half when it started to bounce in late April by July 5th had actually recouped all of its losses for the year closing that that particular day at 25152 and so at the end of that day let's say that we pulled up an options chain for the first Friday of the next month August which was August 2nd and we searched for a put option with what options Traders call a Delta no lower than 20 on that options chain in this case if you look at the Delta column of this options chain you'll see that the 225 put about 25 points below where Tesla closed that day is the 23 Delta put so we'll go ahead and sell two of those for a price of 632 each as you can see now before we go any further you might be wondering why we picked those 20 Delta put options to sell and that's very important so we're going to take a minute to go over this you see the Delta of an option is a mathematically arrived that prediction of how much an options price is likely to move based upon how much the stock stock itself moves and while it's a little bit of a complex topic suffice it to say that an options Delta has also been found to be highly correlated to the probability that an option will expire with value on the day it expires and so for instance a 20 Delta put option has approximately a 20% chance statistically of expiring with value which means and this is really important that it has approximately an 80% chance of expiring with no value and that's because put options only have value on the day that they expire if the stock is trading below that put strike price that day and since there's such a low probability of that happening then there is a very high probability those options will expire with no value and so when we sell 220 Delta puts at 225 on Tesla like we did here then those options only have about a 20% chance of expiring with any value on expiration day which means that the stock itself only has a 20% chance of expiring below 225 because that's you know pretty far below where it's trading on the day that this trade was initiated and therefore if you think about it it's logical that there's an 80% chance of Tesla closing above 225 on the day that those put options expire so keep that in mind as we go through this example because you'll realize its significance in just a minute before we go on to see the outcome of this first trade let's examine what what happens from a cash flow perspective when you sell two puts like this you see when we sell two puts in relation to a stock that is known as a cash secured put transaction and then in this case we sold them for the market price of 632 but remember each put option represents the right for the put buyer the one we sold them to to sell 100 shares of Tesla at 225 for each put that he's been sold and so you multiply that price by 100 and we sold two of them so when you multiply it all together we collect $1,264 in cash which is the amount by which your account's cash balance will increase as soon as you execute this trade let's move to the day these options expire and as you can see by August 2nd Tesla had indeed experienced the serious selloff dropping off down to 20767 that day and so what that means is that with Tesla Trading below 225 we're assigned 200 shares of Tesla paying 225 a share for those shares at the closing that day we're going to be doing this every month for six months so let's start keeping a scorecard of the cash flow that we've collected and so as we mentioned before we collected 12264 for that August cash secured put transaction and we were assigned those shares and so we collected 12264 in that first month once we're assigned the shares you may be asking well how are we going to collect cash income this second month and the answer is that we turn to the call side of the options chain for the September trade but this time instead of looking for the 20 Delta puts we instead simply sell the call strike price that corresponds to the price we were assigned the shares as a result of the puts we sold for the August trade and so at the end of that day we simply move to the options expiration change for the first Friday in September September 6th again about a month later like we did the first time and we sell two of the 225 calls expiring on that day for a price this time of 775 and since we own 200 shares of Tesla and we're selling two calls against those shares options Traders refer to this transaction as a covered call because if Tesla closes above 225 on the day that the calls expire the call options we sold will require us to sell our shares of Tesla at 225 and that's why those calls are said to be covered or in other words collateralized by the shares we own and with a similar calculation to the put cash flow you can see that we collected ,550 this month in cash income okay so now let's move forward to September 6th and as you can see while Tesla rallied a little bit by the end of the day on September 6 Tesla had only actually risen a few points since we entered the trade back in August and it closed at 21073 that day and so the those 225 calls we sold expired worthless why well think about it those calls give the call buyer the right to buy shares of Tesla 225 well obviously no one will exercise that right when those Shares are trading in the open market for much less and so they'll simply expire with no value and just cease to exist and what that means is that this time we just pocket that ,550 but we still own those 200 shares of Tesla that we were assigned okay so we'll add that transaction to our scorecard and move on to the next trade the October trade as you can see we pulled up an options chain that expired on the first Friday of October which was October 4th and again we sold the 225 calls because that was the price we were assigned the shares and as you can see in this case we collected 1654 in cash for selling those two calls as the stock had moved a little closer to the 225 strike price so those options are going to be a little bit more expensive and so moving to the end of that trade on the day that those calls expired well Tesla had rallied significantly up to 2508 well above the 225 call strike price and so the owner of that call Will exercise the right to own those shares at a price far below where it's trading in the market and your shares of Tesla are going to get assigned away from you and so when we update our scorecard you'll note something interesting in addition to our adding to our cash income for the campaign you'll also note that the shares that we were signed originally at 225 were also sold at that price 225 resulting in neither a gain nor a loss on those shares instead you can think of those shares as a kind of a vehicle for collecting that covered call Cash and nothing else and now if you had not realized it before you can understand why we sold the calls exactly at the same strike price that we sold the puts at 225 that way when those shares eventually get assigned Away by the calls we don't experience a realized loss on the shares which of course would cut into our income for the campaign we'll now continue but this time we're back to sell sing the puts because we don't own the shares anymore and so we can simply sell puts to collect cash and so in this case the 20 Delta puts are the 220 puts for the month of November which are going for 630 which as you can see results in $1,260 of cash income and moving to the expiration of the November options as you can see the stock closed at 24898 far above the 220 put strike prices and so those just expire worthless as there's obviously no value to the right to sell your shares at 220 when they're trading in the open market for a lot higher okay so we'll update our scorecard for that trade pocketing another 1260 in cash and we now moveed to the December trade where because the stock hardly moved over the course of the last trade it turns out the 20 Delta puts are again the 220 puts expiring on that first Friday of December 6th and collect in that case $950 and now moving to the December 6th date itself we'll see that Tesla had this huge rally after the election closing at 38922 and so obviously those 220 puts expire worthless as well resulting in yet another win for our scorecard and so we moveed to the final month of our six-month example the January 3rd trade and as you can see in this case because Tesla had moved up so much the 20 Delta puts are going to also move up significantly also and so in this case we're going to be selling the 345 puts and we'll bring in $1,450 in cash in the process and finally moving to January 3rd you can see that Tesla closed at 41044 and as a result the 345 puts expired worthless and so when we take stock we can see that we've collected a total of 8,100 28 over that 6month period on an average capital of $49,000 which translates into a 16.5% return for a six-month period which annualize out to a 33% return a year which is not too shabby this is an exciting example and many campaigns like this are going to end up with really satisfactory results but it's really important to understand that there is a right way to do this and a wrong way to do this and so before we up I want you to focus on what I consider to be the three most important principles when entering into a campaign of selling cash secured puts and by far the most important of these is that you will never have a successful program of selling cash secured puts unless you sell puts derived from stocks that you are very comfortable with that you basically love that you're very bullish about for the long term and the reason for that is as you can see you can get assign the shares as happened early on in this campaign and while in this case those shares were assigned away pretty quickly that reality is that you never know how long it will be for the stock to recover to the price that you were first assigned the shares and so you may be selling those calls for a long time before the shares are finally assigned away and that's actually fine if the shares didn't drop too low below the put strike price but if they fall too far you might be be collecting really meager call income before the stock rebounds which some people find frustrating but if you ultimately feel strongly about the long-term prospects for that company then you'll have the faith the shares will rebound and get assigned away and you can resume your put selling procedure secondly when you first initiate a cash secured put selling program you want to sell the puts at a strike price that you would be absolutely thrilled to own the shares now on this example we Ed the 20 Delta puts so that we could illustrate a consistent process but on other stocks you may feel that the stock has run too far and therefore the 20 Delta puts may actually be a little too close to the current price for your comfort and so that's a judgment call and you'll need to think that through before you sell puts on a stock you want to select the price that if the shares drop to that price you'll feel really comfortable and really happy owning the shares expecting them to rebound and get assigned away readily and finally once assigned shares you must only sell calls at a price at or above the price you were signed the shares by the puts and the reason for that is if you locate the calls below that price you're going to experience a realized loss when the shares eventually get assigned away which defeats the whole purpose of the process the idea is to accumulate cash not take realized losses which means that sometimes the call income you receive will be meager if the stock dropped too much but stay disciplined and don't fall into the Trap of chasing the call Premium and thereby costing yourself losses on the shares that you were assigned and so what I'd like you to take away from today's video is that a campaign of selling cash secured puts and then when assigned selling covered calls against those assigned shares to produce income each month a strategy known as the wheel strategy to options Traders can be very rewarding as long as you make sure that you've followed the disciplines that we laid out for you in this video professional options Traders are well aware of the income producing capability of options selling strategies and now you've got some basic ideas that you can consider for your own personal trading as well now if you'd like to learn three more option strategies that our prot Traders use including the unique options trick that allows you to make money while you wait to buy stocks or ETFs at the price you want and the options income strategy that allows you to make consistent money whether the market goes up or down or sideways and how to make money on a stock or index trade even if you're wrong on the direction then click the link that's appearing right now at the top right hand corner of your screen that will open up the free Workshop registration page in a new window so don't worry you won't lose this video or 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