Options Mini Class (III) — The Wheel Strategy of Sell Put + Sell Call
The comment section always has very talented friends. When I was replying to comments, I saw a friend's comment. I originally wanted to talk about Buy Put first, but seeing the friend's mention of the Wheel strategy, I decided to discuss it first.
Essentially, the Wheel strategy is a combination of buying low + selling high while continuously collecting option premiums.
I'll use a simple example. Suppose the current price of bitcoin:native is $60,000:
Step One: Sell (Sell) 60,000 Put
Since I want to buy at $60,000, I need to sell a PUT. The concept of selling a PUT is that I hope to buy Bitcoin at $60,000. Let's set the date to July 7, assuming the premium is $500.
By 4 PM Beijing Time on July 7, there are two possible outcomes:
Outcome One: If BTC expires above $60,000, I do not buy BTC and directly earn $500.
Outcome Two: If BTC expires below $60,000, I will be exercised. Even if Bitcoin's price drops to $58,000, I will buy BTC at the price of $60,000. So how much do I buy for?
$60,000 + $500 = $60,500, so I actually bought Bitcoin worth $60,500 for $60,000.
Assuming I bought it, then step one of selling PUT is complete.
Step Two: Sell (Sell) 63,000 Call
I bought Bitcoin at $60,000, but since I am here to make money, I still need to sell this BTC. Considering that BTC has been fluctuating between $60,000 and $63,000 recently, I plan to sell at $63,000.
Of course, the current price is still $60,000.
So I will sell a Call at the $63,000 position. Since it is quite a distance away, and if I only choose July 8, there won’t be much premium, and I think it will take at least three days to have a chance to rise to $63,000.
So I chose a Call that expires on July 10, assuming the premium is $200.
Then, by 4 PM Beijing Time on July 10, there are two results.
Outcome One: If BTC expires above $63,000, I successfully sell the BTC and gain an additional $200.
Of course, even if Bitcoin rises to $65,000, I can only sell Bitcoin at $63,000, and I don’t get a penny of the amount over $63,000.
Outcome Two: If BTC expires below $63,000, my BTC definitely isn't sold, but I still earn the $200 premium.
So at this point, I would continue to list at $63,000, for example, until July 12, assuming the premium is still $200, then I would repeat the process of selling Call, making profit + premium if sold or earning the premium while holding BTC if not sold.
After selling, I will also choose to continue buying Bitcoin at $60,000, so I will continue to Sell Put. If I buy it, I will Sell Call. This is the wheel strategy.
This idea is similar to the current grid strategy, but the advantage over the grid is that there are premiums, which provide earnings regardless of whether a transaction occurs. This is also what makes options quite appealing.
Currently, my strategy is to buy at $60,000 (or lower) and sell at $63,000 (or higher). If a transaction occurs, I’m happy; if not, I earn the premium.
Of course, Sell Put + Sell Call can be used whether in a bull market or bear market, but it is not very suitable for a one-sided trend; instead, it is best used in a fluctuating trend.
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