Investors and traders are constantly looking for ways to profit from their stock ownership. There are many different types of income strategies that seek to increase the appreciation of one’s stock and provide consistent returns.
One such strategy is known as the “wheel options strategy”. Offering a semi-passive income stream to traders who want to take advantage of market conditions while minimizing personal risk, the options wheel strategy is one of the most popular trading techniques for trading options.
In fact, it is such a well known technology that there are entire software solutions based on this particular strategy. However, just because it is popular or well-known does not mean that the method will really help you increase returns from the current market price.
In this short article, we’ll take a closer look at the wheel options strategy: what it is, how it works, and the risks associated with this specific method that you should be aware of before trying it out for yourself.
Learn more about the Wheel Options strategy
What is the wheel options strategy?
The Wheel Options strategy is a long-term technique that focuses on the “buy low, sell high” mentality. This option strategy begins when the investor sells a cash-secured put option, which allows him to receive premiums.
They will continue to receive the premiums until they are hired, providing them with a form of passive income. However, once the sells are set, they will now buy and hold 100 shares.
From here, traders can sell covered calls. This allows them to earn more income from their options contracts. Once the stock is called away, the shares will be sold at the strike price, and the trader can reinvest their profits in the secured put options for cash (restarting the cycle).
Traders with a higher tolerance for risk can use multiple put options to maximize their potential capital gains.
Who can use the wheel options strategy?
The wheel options strategy can be used by any investor who has enough capital to fully pay for 100 shares of stock. However, we do not recommend it to anyone who has it Just enough to cover the purchase.
Since current stock prices are always subject to change, you can potentially lose money if the stock price goes down enough. For this reason, it is important not to tie all your available funds into one strategy.
While trading options can certainly be a great form of extra income, it is not the most reliable income. Traders who cannot afford to lose all of their investment should instead stick to stocks that pay dividends, which offer more consistent and predictable income.
Risks of the wheel options strategy
Like any other type of trading, using the Wheel Options strategy is not without risk. Even if you only trade high-quality stocks or your favorite stocks that you follow closely, you can always lose money as the stock moves.
It is important to identify the individual stocks with the greatest upside potential. Since you will be required to purchase 100 shares of stock once the option prices are set, proper stock selection is key.
Once the covered calls are set for cash, you will then need to sell the covered calls. However, if the stock is called immediately, any capital gains you make will be minimal.
In theory, using the option wheel strategy should yield consistent returns. However, the biggest risk with this strategy is losing almost all of your money. Although unlikely, a significant drop in the stock position is possible.
Wheel Options Strategy: How to Get Started
On the surface, using the wheel option strategy may seem rather complicated. However, once you are familiar with the techniques involved in wheel strategy, the whole process becomes a lot easier.
However, your overall success will depend largely on the stocks you choose, the option prices, and the amount of option premiums you earn. Understanding how the process works is one thing, but implementing it successfully is another.
Fortunately, there are software solutions to help you with that! One such solution is PowerX Optimizer. Based on the entire Wheels Options strategy, this service provides users with all the tools they need to succeed.
PowerX can effectively scan through stocks, providing you with stock recommendations that fit your desired metrics. This helps reduce the amount of time you need to search for suitable options. You can also use PowerX to execute live trades.
In addition to this, the platform also offers a variety of educational materials including video tutorials, eBooks, and physical books to help you take options trading to the next level.
If you are looking to maximize your efficiency and overall profitability with a wheel option strategy, the PowerX Optimizer can be an invaluable tool for your daily trading routine. To learn more about the platform (and take advantage of exclusive discounts for modest money), click here!
Learn more about the Wheel Options strategy