Trading The Wheel Options Strategy — 3 Reasons Why You’d Lose Mo

2 mar 2021

I’m Markus Heitkoetter and I’ve been an active trader for over 20 years.

I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails.

They start trading and realize it doesn’t work this way.

The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically.

Real money…real trades.

So, as you know, I love trading the wheel options trading strategy, and this past week was a roller coaster for this strategy.

Friday morning I woke up and my account was down $25,000. Now I’ve been trading a larger account.

It’s two hundred fifty thousand dollars in cash, five hundred thousand dollars in margin, so $25,000 is not that much, but still.

So in this article, we are going to talk about the Wheel Options Strategy.

We will talk about the three reasons why you would possibly lose money with this strategy and also how to avoid these mistakes.

So here we'll talk about my account.

As you know, this show is about real money and real trades, and at the time of this writing, I am still down about eighteen thousand dollars.

So it has gotten a little bit better since this morning, but down eighteen thousand dollars. So we’ll take a look at these trades in detail.
But first of all, let’s talk about the three reasons why you would lose money with this strategy and then also how to avoid them.

3 Reasons You Would Lose Money

So there are three big mistakes that you can make when trading The Wheel strategy.

So the first is panicking. If you are somehow trapped in a position and you say, what the heck do I do now?

I often see traders who say, “What do I do now?”

So solution number one is don’t panic. Easier said than done, right?

But not panicking is so important.

This is what one of our members posted in our community. “It’s not a loss if you don’t sell.” so the worst thing that you can do going back to this is panicking and closing your positions at a loss.

Don’t do this. Don’t close your positions, & evaluate what’s happening.

The second mistake is not having a plan.

Mistake number three is not having the right trading tools.

So, now I will go through my positions that I had and then I will show you how I handled them with my plan.

Then we will also talk about the third mistake in more detail, and then some more solutions.

My Positions

So five positions that I had in my account were (On February 26, 2021):

NYSE:AAPL

NYSE:AMD

NYSE:DBX

NYSE:GDXJ

NYSE:RIDE

So let’s start with AMD first.

If AMD were to stay above 83.50 until the remainder of the trading session (at the close that day), I’d make money.

Everything that happens with my positions, I write this down, and I recommend you do the same thing so that you know of what’s happening to your positions.

You will know which ones are actually in trouble and which ones are good to go.

So if AMD closed above 83.50 nothing would happen, and I would keep the whole premium.

For this trade, this was $576 in premium for the week. Not bad at all.

The second position is DBX which is Dropbox.

So Dropbox needs to stay above 21.50 and it was trading at 22.85. So it seemed that we were pretty good there.

You might be wondering why I am talking about the positions that are OK?

You see, in order to stay calm and to make sure that you’re not panicking, focus on the positive first.

I know if you’re taking a hammer and you smack one of your fingers, what do you focus on? The finger that hurts. Right?

But you have four other fingers that are absolutely fine.

So it’s important to focus on what’s going right for us.

So if DBX stays above 21.50, which is very likely. So I sold 47 of these options for $13 totaling $611 in premium, so not bad at all.

So what’s happening with GDXJ?

So the week prior I got assigned because it expired below my strike price.

So I got assigned 2,100 shares at $48.

Now, here’s what I did with this. So let’s forget these shares for just a moment and let’s again focus on the positive of what’s working well for it.

I sold covered calls at the 49 strike price, and I collected premium.

So how much premium did I collect for these calls? I sold 21 contracts for $75 each.

So I collected for this trade, $1,575 in premium.

So we are OK there, and I still have the shares, because they expired worthless.

So the next position is RIDE.

So if it stays above 21.50 I just collect the premium and nothing else happened, but the price stayed below.

I got assigned 4,700 shares at $21.50 so this position is in trouble, we will deal with that at some point, but here’s the good news.

I still collected $1,974 in premium.

So the last position here is AAPL, and I did get assigned these shares a week prior.

So I have 800 shares and I’ve not been able to sell any calls against it.

So here I have 800 shares at 133, and also these shares are in trouble because Apple right now is trading at $124.

So I got assigned and now AAPL is down. Not good.

I still collected all this premium and it all added up.

So because overall, it was a pretty darn good week, collecting $4,736 overall.

I don’t know about you, but this is not bad at all.

And I know you might be saying, “oh my gosh, you’re talking about making some money here, but what about all of these red positions?”

Why You Shouldn’t Worry About Being Assigned

We’ll take a look at these starting with RIDE

This is where it goes back to what is the worst thing that you can do? Panicking.

Like if I were to sell for example.

If I would sell these shares instead of collecting the premium that I have here, I wouldn’t have made any money on RIDE, I would have lost $8,272 instead.

I don’t know about you, but I would rather keep the premium of $1,974 instead of losing $8,272.

For me personally, I will not worry about it.

So here is where it goes back to. What do we do? Follow your plan.

So you got to follow your plan, and this point I’m about to make is very important.

I’m actually excited to get assigned, and in a moment you will see why.

Your reaction should be, “Yes! I am assigned because I want to own the stock.”

I’m really, really happy about this. I’m happy about having stocks.

Or your reaction might be this where you say, “oh my gosh, what have I done?”

If this is your reaction, then you violated the number one rule of “The Wheel Club,” and here’s the number one rule of the wheel club:

"Don’t sell puts on stocks that you don’t want to own".

OK, wrong movie, but you get the idea right? So let’s take another look at my positions.

Am I happy to own AAPL stocks? Yes, I am. Am I happy to own GDXJ and RIDE? Yes! Would I have been happy to own AMD stocks if I was assigned? Of course! Absolutely!

OK, so let’s take a look here at the stocks that I’ve traded thus far year to date.

And as you can see, my profits year to date, around $43,000.

Take a look at all the stocks.

These are the stocks that I would not mind owning at all, and this is really the number one rule of The Whale Club. So Apple, AMD, DBX, GDXJ, HAS, IBM, LL, WYNN, ect. All of these are good, solid stocks that I wouldn’t mind owning.

So let’s talk about what do we do with RIDE.

Why am I so excited to own it? This is where it goes back to having a plan.

So my plan is just to follow The Wheel strategy, and this means that after assignment, I will sell covered calls and collect premium. Very, very easy.

This is where we go back to mistake number three, not having the right tools. I use the PowerX Optimizer and I will show you right now how to use it and why it is so important.

So PowerX Optimizer supports two separate strategies.

The PowerX strategy as well as The Wheel strategy and part of the PowerX Optimizer is the real income calculator.

I set my buying power to $500,000 because that is the buying power that I have in the account.

So the stock I want to use as an example is RIDE.

Let’s plug in some numbers and see what our premium is on this one for if I get assigned these shares, and start selling calls.

So getting assigned 4,700 shares at 21.50.

Now, the option strike price that I’d try to sell would have to be at the price that I bought at or above.

The last traded price was $0.43, so let’s assume we’re selling the shares at that same price.

So I’m using the strike price here of 21.50 and I’m selling calls for $0.43.

If I did this I would get $2,021 in premium! Wholly Cannoli, are you getting excited about this? I’m excited about this. Now you see why I’m excited to get assigned.

If you add this with the premium I’ve already collected on RIDE from selling puts, which was $1,974, that’s almost $4,000.

You get the idea right? So I would not make any money on the stock but that is OK. So is this stock really in trouble if I make 4000 dollars in two weeks? I don’t think so.

So one trade that I had last week that wasn’t doing so well was AAPL.

I got a signed AAPL at 133, so I need to see if I would get enough premium to sell calls.

This is why it is so important & I can’t even stress this enough, how important it is to have the right tools.

Having the right tools help you make the best decisions instead of panicking.

Back to AAPL, I was assigned 800 shares at $133.

How much premium could we get for selling calls?

So right now, if we sell calls with expiration for the end of this week, at the 133 strike price, we would only get about $0.13, and I would only make about $104 which is nothing.

So out of all these positions, Apple is the only one that right now is kind of in trouble because I not yet able to get enough premium when trying to sell calls, but that is OK.

All I need to do is just be patient and wait until AAPL goes up.

Summary

In the meantime, I do believe that Apple is a solid company, and I don’t mind owning the shares.

This is where we go back to rule number one of The Wheel Club.

“Don’t sell puts on stocks you don’t want to own”

because if you do this, then you probably sitting there today, like, what have I done?

But I hope this helps you see how to deal with being assigned and that you also see, how to handle things when a trade is in “trouble.”

Just sell covered calls, and collect premium. If there isn’t enough premium available to sell calls, just wait until it bounces back, it’s really not a big deal.

I am absolutely OK making $4,736 last week with the potential to make another $3,000 this week.

Not bad at all, as you know.

My goal is to make $15,000 per month. If I can make $7,000-$8,000 in two weeks. I’m well on my way.