The Option Wheel is a popular strategy with some key positives – buying low, selling high, and generating income by being short option premium. Similar to a covered call strategy, many investors looking to graduate to option selling, gravitate towards the Wheel strategy.
But a key thing to remember is that like any strategy that involves undefined risk to the downside, traders can quickly find themselves in an uncomfortable situation in times of a market drop.
In this video, we’ll cover the Wheel Strategy in more detail, looking at potential benefits as well as its potential risks. We’ll also look at a modification to the strategy to see how switching calls and puts to defined risk spreads might help address some of the issues. Even if you have no intention to ever trade this particular strategy, further lessons about credit put and credit call spreads may be helpful for use elsewhere. We hope you enjoy:
Based upon publicly available information derived from option prices at the time of publishing. Intended for informational and educational purposes only and is not any form of recommendation of a particular security, strategy or to open a brokerage account. Options price data and past performance data should not be construed as being indicative of future results and do not guarantee future results or returns. Options involve risk, including exposing investors to potentially significant losses and are therefore not suitable for all investors. Option spreads involve additional risks that should be fully understood prior to investing. Securities trading is offered through Options AI Financial, LLC, member FINRA and SIPC.