Hello, is it possible for you to explain the reason why we use a call credit spread (after we bought the shares) instead of just using a short call at 250? I may be missing something but it seems to me that, under most future scenarios, the biggest premium collected by just shorting the call makes it a better strategy on average. The only way a call credit spread seems superior to me is when the stock pice shoots up (as it was the case here). Some clarification on this is much appreciated. Congratulations on the videos. They are very clean and easy to understand.
I thought the wheel was selling puts until assigned then selling calls above your purchase price. I never heard of using call credit spreads instead of just selling calls. I like your approach. Thanks for the education. I wish I knew 1/10 of what you know about options.
I totally agree, why sell a call credit spread against outright ownership of the CAT shares? Using a covered call sell strategy would generate more premium. Isn't that the way the campaign went throughout the preceding months, selling OTM naked puts? Good material here.
Covered call would generate more premium but you also lose out on the upward run in the stock.A call spread would let you participate in that. Guess it depends where you expect stock to be in near term. One can switch between just selling calls or a spread if say there is earning due soon, or investors conferences or any other criteria.
Seth is such a great teacher. Every trade is well explained and presented. My question is what happens if “CAT” drops to $200 instead of rallying to $270s after the $250 PUT is assigned? What do you do then? And it happens a lot in real live trading where you wrote a call and the stock plummeted. Now you are stuck holding the stock with a big loss. Thanks.
The trick is to only use this strategy on big, stable companies that you wouldn't mind just owning and holding. If they pay a dividend, even better, that way you still get some cashflow while you wait for the stock to rally.
This is the best scenario of the wheel. He didn’t explain what happens when the stock continue to sell off like last year. U can sell calls for next 2-5 yrs and prob still not recover. They should have explain a stoploss or a strategy when the stock continue to go lower.
@@knpstrr I have watched almost all of smb videos. They always suggest roll or adjustments. Never once on any credit spread or butterfly they said 2x or 3x stops like most pros do
Your profit on the long call was exactly equal to what you would have made by owning the shares and the selling them at the higher price. Plus you got the premium by selling the short call. And you can buy back the stock at the higher price if you wanted and reestablish the position. Every covered call should include selling OTM calls and buying a further OTM call. Well done!
One thing I thought about in this strategy. At around 8:30 in the video. When you were assigned the stocks and sell the 250 call and then buy the 255. What if it closes between there at 253? Wouldn't it be better to sell the 250 call and also buy at 250. The both at the same price? Or is there something I missed?
You sold the Put at 175 strike when the stock was trading at 180 on 9/2/2022. Then you move to 10/7/2022 when the Option is at 177 and expires worthless. However, in between those dates, the stock dipped to about 160. Couldn't the Put buyer have exercised his Option at that time, leaving you no choice but to buy the shares at 175? I'm new so I may be missing something.
@@bti2270 But on the day CAT traded down to 161, the 175 put was 14 points ITM and only 8 days from expiration. The time value would've been close to 0. The option would have been worth at least 14 points, which is 9 more than the option buyer paid for it.
@@bti2270 A market maker who is being forced to take on inventory of a stock which is declining in price will find it advantageous to also be a market maker of puts (and calls) in that stock as their principal hedge and logical extension of their book. Assignments prior to expiration are a common result of such inventory management when the price of a stock moves too far away from strike price open interest.
Everyone has their own risk-reward strategies. I believe that they are showing a single campaign on what the optimal returns could be if a trader stays the course. For me, 30%-80% return is enough, depending on market sentiment and world conditions.
how to handle scenario when we are assigned with shares and price of stock keeps falling down? Selling covered calls (never mind spreads) will give very minimum premium especially if tendency of stock price is to keep going down...
I want to know as well, I guess this is the risk here, because the point is you have to be bullish on a stock. But if that's the case why not just buy the stock, if you are exposed to stock going down with and without options. But mabye i don't understand
In that case, you could set a stop loss below current price and simultaneously buy a put to hedge any further losses. If it keeps dropping, the put option should cover or surpass your stock losses.
Would love a video discussing the bad side of the wheel. For example, you are assigned the stock and it moves down on you, so much so that the break even strike is essentially 0 credit
Not sure if I can do this on a Robinhood account? Like RH allows me sell Spreads but will it use my Shares for the short Call? I don’t think it will let me sell off the short leg separately 🤔
Wheel strategy is great when combined with analysis, indicators, studies, support/Resistance levels, trade channels, Implied Volatility, Theta analysis etc. Be aware of catalysts such as economic news & Earnings when selecting expirations.
So am I seeing the the loss potential... That is after we get assigned on the Short Put... and we sell the Short Call and buy the Long Call... and then... the stock goes DOWN instead of up? We get the +$9 for the credit spread and then lose a ton on the share price drop? Is there some protection or strategy to deal with that? Naive thought is, always have a Long protective Put... but that's going to cut into returns... How are these High Income Covered Call ETFs returning 100%+ annualized? Is there some better strategy? (Maybe Poor Man's Covered Calls or something else?)
Love the strategy, and thank you for sharing your experience with it. I just wish I had more capital to take advantage of a few more of the setups per month.
So in april you went from positive 3k to negative 1k, after taking a 4k loss all the way to 209 from 250, and then try to recover selling call spreads? why not just sell put spreads and not worry about the rest of this?
Great point. The video does say that one needs to be long term bullish on the stock so in light of that holding at a loss isn’t huge issue. But let’s analyze further. Put spreads would fetch you lower premium so if you are happy with say 1% instead of 2% monthly then that would be the way to go. With put spread you would still be short the spread amount. Ex in this case if you had bought 250-240 put spread you would still be approx 1k negative. This would be offset by the previous put spread premiums collected so one could still come out ahead! I think frustrating part would be if you keep earning 1% with spreads when know you can do 2% with puts…
Why did the 250 short call in May expire worthless when CAT closed at $215.09??? I thought money ought to have been made as a result of the drop in price? Please help me understand
Based on these numbers, CAT started at $177 and finished at $286. 100 shares times $109 is $10,900. Just own the shares. At one point you owned them at $250. So you had the money.
What happens if the stock price closes in the middle of the credit spread....I guess stock is called away & P/L would depend on historic trade blotter/log
I'm celebrating a $30,000 stock portfolio today. I started this trip with 6km. I have invested time and the right conditions, now I have time for my family and the life that awaits me.
The same goes for my current profit of $20,564 from my investment in Ms. Mary Onita Wier's trading platform. I truly believe that she and her strategies are the best trading broker I have ever worked with.
It is really incredible!!!! because I'm just shocked that someone mentioned and recommended Mary Onita Wier. I thought people didn't know her... She's really great!
Well... that woman, her good work was everywhere. I see a lot of good comments about this in several places. I feel safer investing with her, I've been on the train for over two weeks now...best broker ever Ms. Mary
Because you get money right away. If he had used call credit spreads the entire way starting at 175, he would have captured almost the entire capital gain.
In that case, you won't gain/lose much for that spread. You get to keep the premium for the call that you sold and your shares will be assigned and the call that you bought (+$5 above the other leg) is worthless. This spread technique is like buying an insurance that if the stock does shoot up significantly like it did towards the end, you would be benefited by the call you bought.
@@sailajacherukuri1636 i know the technical aspect of it, i was just trying to say that it will not give you the gain what is being presented in example. A simple solution could be to sell covered calls instead of spread.
I can see selling a call at the strike price the shares were put to you. But why buy a call on this same stock? It seems like you are just further concentrating your capital upon the exact same hope that the share price of this stock rallies. If you're going to buy a speculative call, why not do it on some other stock which might have the same or better chance of rallying and thereby diversify the hope of gain to which you're exposing your capital? It's almost as though, stuck with the shares, you're now only watching this one stock while ignoring opportunities elsewhere.
What do u do in situations when the stick get assigned is fallen too far below the price u were assigned. A detail ignored in the video. 2022 i got assigned on stocks at the prices of several stocks. Yet to see them recover close to the price a call can be written. Have been sitting on them for a year who knows when they will come back to 2021 prices.
Or you could buy 100 cat shares for 18000, and use that equity for trading and still have 7000 for trading. And in a year your shares are 27000 and +trading income
You had me up until you sold the Call Spread, instead of just selling Covered Calls. Why do that? I thought the "Wheel Strategy" was generating income by selling puts, get assigned, sell calls, get called away, then repeat. Constant selling for income. Buying a Call throws a "Directional Options Strategy" monkey wrench into the works.
Works great right up until the market doesn't do what you penciled it in to do. HUGE hit to cost basis, if you sold a 250 PUT, and then trying to sell covered calls when the Underlying dropped to 215. Rolling may be needed in such conditions.
@smbcapital Thank you for posting another great video and a great way to earn while you wait for stock to pull back to level you are comfortable buying at. I have a question though. This works great when conditions line up as stated in the video. What is the advisable path when say you sell monthly put for $175 but at the end of the expiration it falls to $155. Now you are grabbing it at some loss plus can’t really sell call spread unless you settle for lower premium for 175 strike. Is the best strategy to wait?
You would have been better off buying 100 shares of stock when you a started in October 2022 and in September 2023 you would have had more than $10k. Also your strategy only works if the stock goes up. Let's see what you can do when you are assigned the stock and for the next few months the stock keeps dropping!!
Yes, you're right. This strategy MUST be used on a slowly rising stock. But, he does say at the very beginning to only do this on stocks with a positive growth expectation. So, the video isn't wrong. Just maybe could have used a heavier emphasis on that fact.
What i did is keep selling covered calls and paying attention they don't get exercised (I'd roll over to a next month or two) as strike prices go below stock purchase price. I'd usually buy at delta
Yea, depends on your goal. This is for semi consistent income. Buy and hold typically beats any other strategy if you give it enough time... and the company doesn't go bankrupt. Looks like buy and hold would've been a 60% gain for the year.
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Hello, is it possible for you to explain the reason why we use a call credit spread (after we bought the shares) instead of just using a short call at 250?
I may be missing something but it seems to me that, under most future scenarios, the biggest premium collected by just shorting the call makes it a better strategy on average.
The only way a call credit spread seems superior to me is when the stock pice shoots up (as it was the case here).
Some clarification on this is much appreciated.
Congratulations on the videos. They are very clean and easy to understand.
I thought the wheel was selling puts until assigned then selling calls above your purchase price. I never heard of using call credit spreads instead of just selling calls. I like your approach. Thanks for the education. I wish I knew 1/10 of what you know about options.
I totally agree, why sell a call credit spread against outright ownership of the CAT shares? Using a covered call sell strategy would generate more premium. Isn't that the way the campaign went throughout the preceding months, selling OTM naked puts? Good material here.
Covered call would generate more premium but you also lose out on the upward run in the stock.A call spread would let you participate in that. Guess it depends where you expect stock to be in near term. One can switch between just selling calls or a spread if say there is earning due soon, or investors conferences or any other criteria.
Selling those call credit spreads is not very satisfying on a month to month basis, but it sets up a great exit scenario. Thanks again!!
I’ve never seen this done with the call vertical before. This is brilliant!! Thank you Seth!!!
Seth is such a great teacher. Every trade is well explained and presented.
My question is what happens if “CAT” drops to $200 instead of rallying to $270s after the $250 PUT is assigned? What do you do then? And it happens a lot in real live trading where you wrote a call and the stock plummeted. Now you are stuck holding the stock with a big loss. Thanks.
It works. Until it doesn't I had made big consistent profit using his strat. Until I lost my ass..
agreed. where is the downside risk management on the strategy? @@hwnwhaler1
You should have a stop loss that will not eliminate all your profit
The trick is to only use this strategy on big, stable companies that you wouldn't mind just owning and holding. If they pay a dividend, even better, that way you still get some cashflow while you wait for the stock to rally.
@@dustinasche most of the time if they pay dividends they aren't as volatile and wouldn't pay much on selling calls.
This is the best scenario of the wheel. He didn’t explain what happens when the stock continue to sell off like last year. U can sell calls for next 2-5 yrs and prob still not recover. They should have explain a stoploss or a strategy when the stock continue to go lower.
You can always have a stop loss on the shares themselves and exit at a defined loss
@@knpstrr obviously, but they didn’t mention it. So it’s not part of their strategy
@@Eqnotalent I think pros always have stop losses on their trades
@@knpstrr I have watched almost all of smb videos. They always suggest roll or adjustments. Never once on any credit spread or butterfly they said 2x or 3x stops like most pros do
I still own ARKK @125/share😢
Your profit on the long call was exactly equal to what you would have made by owning the shares and the selling them at the higher price.
Plus you got the premium by selling the short call. And you can buy back the stock at the higher price if you wanted and reestablish the position.
Every covered call should include selling OTM calls and buying a further OTM call.
Well done!
One thing I thought about in this strategy. At around 8:30 in the video. When you were assigned the stocks and sell the 250 call and then buy the 255. What if it closes between there at 253? Wouldn't it be better to sell the 250 call and also buy at 250. The both at the same price? Or is there something I missed?
You sold the Put at 175 strike when the stock was trading at 180 on 9/2/2022. Then you move to 10/7/2022 when the Option is at 177 and expires worthless. However, in between those dates, the stock dipped to about 160. Couldn't the Put buyer have exercised his Option at that time, leaving you no choice but to buy the shares at 175? I'm new so I may be missing something.
Yes, the option could be exercised at any time it's in the money, but the put buyer would lose all the time premium in the option if it was exercised.
@@bti2270 But on the day CAT traded down to 161, the 175 put was 14 points ITM and only 8 days from expiration. The time value would've been close to 0. The option would have been worth at least 14 points, which is 9 more than the option buyer paid for it.
@@bti2270 A market maker who is being forced to take on inventory of a stock which is declining in price will find it advantageous to also be a market maker of puts (and calls) in that stock as their principal hedge and logical extension of their book. Assignments prior to expiration are a common result of such inventory management when the price of a stock moves too far away from strike price open interest.
Are you really holding the options until expiration?
Ain't it better to move to the next trade when the theta decay is very low?
Everyone has their own risk-reward strategies. I believe that they are showing a single campaign on what the optimal returns could be if a trader stays the course.
For me, 30%-80% return is enough, depending on market sentiment and world conditions.
how to handle scenario when we are assigned with shares and price of stock keeps falling down? Selling covered calls (never mind spreads) will give very minimum premium especially if tendency of stock price is to keep going down...
I want to know as well, I guess this is the risk here, because the point is you have to be bullish on a stock. But if that's the case why not just buy the stock, if you are exposed to stock going down with and without options. But mabye i don't understand
In that case, you could set a stop loss below current price and simultaneously buy a put to hedge any further losses. If it keeps dropping, the put option should cover or surpass your stock losses.
what do you do when the stock is assigned to you and is below your cost basis?
You remind yourself what a great value CAT stock is, at any price.
Would love a video discussing the bad side of the wheel. For example, you are assigned the stock and it moves down on you, so much so that the break even strike is essentially 0 credit
Yes, such a video is all I search for. I have been digging RUclips to find all bad scenarios of the wheel when things go wrong.
Not sure if I can do this on a Robinhood account? Like RH allows me sell Spreads but will it use my Shares for the short Call? I don’t think it will let me sell off the short leg separately 🤔
Great info! Im wondering what a bullish outlook wheel strategy looks vs buy and hold or selling puts then covered call strategy
Wheel strategy is great when combined with analysis, indicators, studies, support/Resistance levels, trade channels, Implied Volatility, Theta analysis etc. Be aware of catalysts such as economic news & Earnings when selecting expirations.
Wheel is probably best on cyclical stocks...
such stocks a cyclical?@@Majki70
Once assigned the shares, why not initiate a covered call strategy?
So why not put the short call somewhere between $251 & $254 to make money in case the price closes in between $255 and $251?
So am I seeing the the loss potential... That is after we get assigned on the Short Put... and we sell the Short Call and buy the Long Call... and then... the stock goes DOWN instead of up? We get the +$9 for the credit spread and then lose a ton on the share price drop?
Is there some protection or strategy to deal with that?
Naive thought is, always have a Long protective Put... but that's going to cut into returns...
How are these High Income Covered Call ETFs returning 100%+ annualized?
Is there some better strategy? (Maybe Poor Man's Covered Calls or something else?)
Could this theoretically work with 0DTE options? Running the wheel on SPY or other American-style options?
Excellent video. We'll explained. Immense value! Thank you.
Great video 📹
Love the strategy, and thank you for sharing your experience with it. I just wish I had more capital to take advantage of a few more of the setups per month.
I learned something today. Thank you!!
what would the return have been just buying in Oct 22 and selling in Sept 23?
So in april you went from positive 3k to negative 1k, after taking a 4k loss all the way to 209 from 250, and then try to recover selling call spreads? why not just sell put spreads and not worry about the rest of this?
Great point. The video does say that one needs to be long term bullish on the stock so in light of that holding at a loss isn’t huge issue. But let’s analyze further.
Put spreads would fetch you lower premium so if you are happy with say 1% instead of 2% monthly then that would be the way to go.
With put spread you would still be short the spread amount. Ex in this case if you had bought 250-240 put spread you would still be approx 1k negative. This would be offset by the previous put spread premiums collected so one could still come out ahead!
I think frustrating part would be if you keep earning 1% with spreads when know you can do 2% with puts…
Why did the 250 short call in May expire worthless when CAT closed at $215.09???
I thought money ought to have been made as a result of the drop in price? Please help me understand
Based on these numbers, CAT started at $177 and finished at $286. 100 shares times $109 is $10,900. Just own the shares. At one point you owned them at $250. So you had the money.
What happens if the stock price closes in the middle of the credit spread....I guess stock is called away & P/L would depend on historic trade blotter/log
Selling $5 spreads for 3-8 cents seems unnecessary. I’d sell just the call or wait for a rally to get at least 25ish cents for the spread
I have never heard of a wheel strategy like this. Selling calls and selling put is how I’ve always done it. I might give this a try
The opener made me laugh out loud. 10 minutes… 😂
why don't you get in the prop firm challenge for option. their no firm doing options. only forex and futures.
that's really interesting. thanks!
I'm celebrating a $30,000 stock portfolio today. I started this trip with 6km. I have invested time and the right conditions, now I have time for my family and the life that awaits me.
The same goes for my current profit of $20,564 from my investment in Ms. Mary Onita Wier's trading platform. I truly believe that she and her strategies are the best trading broker I have ever worked with.
Greetings!! I have heard a lot about Ms. Mary Onita Wier and how good she is. How secure are the services?
Given the stable weekly returns I have invested with it, there is no doubt that it is the most reliable on the market.
It is really incredible!!!! because I'm just shocked that someone mentioned and recommended Mary Onita Wier. I thought people didn't know her... She's really great!
Well... that woman, her good work was everywhere. I see a lot of good comments about this in several places. I feel safer investing with her, I've been on the train for over two weeks now...best broker ever Ms. Mary
Happy Friday
Huh selling a call credit spread instead of a covered call ... interesting! 🤔
yeah.... i guess that long call will be useful in protecting of possible gains if price shoots up thru covered call...
Thanks exactly what happened. Price shot up past the short call, and the profit from the long call was about $2k@@Majki70
What am I missing? If you had just purchased CAT at $175 and sold at $275, you would have made more $. Why is the wheel better in this case?
Because you get money right away.
If he had used call credit spreads the entire way starting at 175, he would have captured almost the entire capital gain.
What if stock doesn't rally too much and close between your spread legs.
In that case, you won't gain/lose much for that spread. You get to keep the premium for the call that you sold and your shares will be assigned and the call that you bought (+$5 above the other leg) is worthless. This spread technique is like buying an insurance that if the stock does shoot up significantly like it did towards the end, you would be benefited by the call you bought.
@@sailajacherukuri1636 i know the technical aspect of it, i was just trying to say that it will not give you the gain what is being presented in example. A simple solution could be to sell covered calls instead of spread.
if you're between legs, you break even or small profit/loss
Great strategy
call credit spreads....mind blowing
I can see selling a call at the strike price the shares were put to you. But why buy a call on this same stock? It seems like you are just further concentrating your capital upon the exact same hope that the share price of this stock rallies. If you're going to buy a speculative call, why not do it on some other stock which might have the same or better chance of rallying and thereby diversify the hope of gain to which you're exposing your capital? It's almost as though, stuck with the shares, you're now only watching this one stock while ignoring opportunities elsewhere.
What do u do in situations when the stick get assigned is fallen too far below the price u were assigned. A detail ignored in the video. 2022 i got assigned on stocks at the prices of several stocks. Yet to see them recover close to the price a call can be written. Have been sitting on them for a year who knows when they will come back to 2021 prices.
Or you could buy 100 cat shares for 18000, and use that equity for trading and still have 7000 for trading. And in a year your shares are 27000 and +trading income
You had me up until you sold the Call Spread, instead of just selling Covered Calls. Why do that? I thought the "Wheel Strategy" was generating income by selling puts, get assigned, sell calls, get called away, then repeat. Constant selling for income. Buying a Call throws a "Directional Options Strategy" monkey wrench into the works.
Did you watch the whole video?
@@ryanh4571 Yes...twice.
Wow!
Buying and holding CAT for the same period has a 59% return that compares to the 25.2% return of this strategy.
Thank you ❤
Works great right up until the market doesn't do what you penciled it in to do.
HUGE hit to cost basis, if you sold a 250 PUT, and then trying to sell covered calls when the Underlying dropped to 215.
Rolling may be needed in such conditions.
Had you bought the 100 shares outright at $180 then sold at end of the year for $286, you would have made almost 59% instead of the 25% profit.
Or he could have implemented the call credit spread all the way from 180 instead of selling the put options.
Or you buy 100 shares at 180 and year later they are worth 286 and you have over 10k gain...
Need to watch this 5 times to understand the strategy lol
@smbcapital Thank you for posting another great video and a great way to earn while you wait for stock to pull back to level you are comfortable buying at. I have a question though. This works great when conditions line up as stated in the video. What is the advisable path when say you sell monthly put for $175 but at the end of the expiration it falls to $155. Now you are grabbing it at some loss plus can’t really sell call spread unless you settle for lower premium for 175 strike.
Is the best strategy to wait?
I don't like these options because you make a little money and have to tie up thousands to cover yourself.
That mostly works, but having 25,000 tied up in a trade you broke even on isn't "irrelevant"
do you gain the appreciation from this? lol holding from 150 to 250 would have made much more profit on 25k
You would have been better off buying 100 shares of stock when you a started in October 2022 and in September 2023 you would have had more than $10k. Also your strategy only works if the stock goes up. Let's see what you can do when you are assigned the stock and for the next few months the stock keeps dropping!!
That's the achilles heel of this strategy.
Yes, you're right. This strategy MUST be used on a slowly rising stock. But, he does say at the very beginning to only do this on stocks with a positive growth expectation. So, the video isn't wrong. Just maybe could have used a heavier emphasis on that fact.
What i did is keep selling covered calls and paying attention they don't get exercised (I'd roll over to a next month or two) as strike prices go below stock purchase price. I'd usually buy at delta
@@Majki70 that's exactly the way to go
Yea, depends on your goal. This is for semi consistent income. Buy and hold typically beats any other strategy if you give it enough time... and the company doesn't go bankrupt. Looks like buy and hold would've been a 60% gain for the year.
175 put was deep in the money at 160 and nobody sell you Stocks?😀
I can see why new traders don't like this channel, its the visuals. Too much talking too little visuals. Improve that and you attract some whales