For everyone who likes this video they will be able to financially retire before the age of 59! Give it a try! You can check out my entire playlist on trading options here: kzread.info/head/PLscTZuOqKWIxSZzy4ObKWDznEsCot_1HU

@GilbertFleming

2 жыл бұрын

One more question for your question and answer session… I own 100 shares of Jpm, mo O and Brookshire Hathaway. I want to own the shares long-term, but I want to write covered calls to increase my income. My June 17 options expired. I have two choices: Number one… Buy more one month covered calls on the Stocks on Tuesday when the market opens up. I would look for a strike price that has a Delta of Les than 0.3 Number two… Wait until the market hits a new high or at least turns much higher than it is today. Should I just sit on my hands for a week or two and wait until the market as an update, and then sell covered calls on the Stocks?

Great video, i'm 67 years old and have been doing this for a year and a half...i am so grateful to the friend/mentor who taught me this method. I sold a rental house that was positive about 500 per month, i sold the house at the market high in 2022, and now use the cash proceeds to make an amount per month that i never imagined possible...

When this video was made Jan 23 2022, the VIX was ~30, and today it's about half that. Option prices are highly influenced by volatility (VIX), and today the SPY is at ~416, while the VIX is only ~18%, so the same option strategy will only produce about 5k/month, at the money. I am enjoying Jake's videos, but options are complex, be careful. Jake's video on Pin Risk is great advice - required watching if you're thinking of trading options.

@kmoney00769

5 ай бұрын

Thanks. Never heard of Pin Risk

@Putseller100

3 ай бұрын

You aren't kidding on that. Just for fun I looked up premiums as of now (4-1-24) and even with SPY almost 100 higher than in the video you would need to go out 88 days in expiration to receive 11$ like Jake shows. So now basically 4 months out where as Jake was showing 1 month out. That is an insane difference.

YES! This is the strategy I've been implementing. What I do is sell a put and use that premium to buy shares of SPY. If assigned the put, then I sell a covered call at the exact same strike price I got assigned. Then I use that same premium to buy more shares of SPY. If assigned the call, then it is as if I just held onto the stock and am leftover with the exact same amount that I can sell the put for. The only bad thing is that I might have to play catch up if the stock goes up too high, but that's where the shares of SPY I bought using the premium come in handy.

@holysmokes6709

2 жыл бұрын

Spy is a hard one to get the capital to write puts for I keep the premium in cash and wait until Monday to decide what to do with it. I might not have enough capital to write a spy put but I can write puts on other stocks in the meantime.

@DieWolf57

2 жыл бұрын

What will You do if the price for SPY goes further down and You had to pay the strike price ? At what strike price do You think You will be able to sell the covered calls ? Surely far less than You paid. To make Things easier: Current price for share X is 100 USD. You sell puts at a strike of 90 USD. The price crashes to 80 and You will have to buy at 90 USD. There is no way You will sell a call at a strike of 90 USD. I really like Jake - but if the wheel would work as promised why should Jake continue to make videos at all ?

@sithcat7025

Жыл бұрын

@@DieWolf57 Because he doesn't have $437,000 cash yet to invest?

@nervosa68

Жыл бұрын

Thank you for sharing. I find it difficult to understand anything macro economic / financial. You have presented this information well and i think im getting it. Ty.

@ForEverWarrior

Жыл бұрын

@@DieWolf57 use 15-20% of the premium earned to buy a put and protect down side risk to an extent. this is called a "collar". e.g., SPY is 400, you sold covered call at 401 strike and collected $8 in premium with 30 DTE. now buy a put at strike 380 (just an example) and pay premium of $1.5 for eg. your loss is capped at $20 while you make $8 in premium.

Great video Jake! I've been doing this strategy for a while. It would be brilliant if you did a year end summary if you kept going with this for 2022. My guess is with strike selection further out of the money it would have basically been a push, as with SPY down 20% YTD most strike selections would have meant the declining market would have cancelled out the premium collected. (Or quite likely gone negative) How to use this strategy in bear markets like we're in now would be another useful video. For instance timing put sales with when we hit lower lows of the downtrend, DTE / expiry selection, trade management / rolling ideas, etc. Keep up the great work!

The more I watch your videos the more I understand options, thanks Jake, love your teaching. I am just amazed how calm you are while everybody in youtube is going crazy and dreading the next few days.

@JakeBroe

2 жыл бұрын

Haha, thanks Marla! The best traders are the ones who can control their emotions and remain objective. I try to remember this before I open up my computer for the day. Cheers!

@BM-ub9gh

10 ай бұрын

@@JakeBroeI collect smart quotes from famous minds and I’m adding this one to my collection: ”The best traders are the ones who can control their emotions and remain objective.” JakeBroe, THE smart man of KZread

You have been my favorite channel to learn about investing. With your explanation everything make more sense. Thank you for doing such a good job. Wish you well!

@JakeBroe

2 жыл бұрын

Thanks Husky Deal! I appreciate that!

Thanks for the video Jake! Would be sick to even show you doing this once a month and more so applying what you do (more visual learners) but I agree, looks like a great strategy especially when you can reinvest half the profit

@JakeBroe

2 жыл бұрын

Not a bad idea Mikey! I can think about this!

This is a nice strategy that I’m also using with a small part of my portfolio. One thing to point out are taxes, and especially stamp duties or some other for of transaction-triggered tax if you’re a resident of a jurisdiction where such taxes apply. As the wheel strategy potentially results in frequent purchases/sales transactions of shares, these stamp duties really can add up quickly, eating away a big chunk of the net premia received. For US based investors, please be aware of short term capital gains taxes which this strategy most likely triggers.

Hey Jake, I like this strategy. Just read through most of the comments. I would say more than half of people think you can’t make this work. I look forward to watching you make this happen. Keep up the good work.

@wealthelife

Жыл бұрын

It would nice to see what would have happened if Jake had implemented this in Jan with the $100K or so he had in his trading account. SPY dropped to $366 in June, so would be nice to see how the actual income streams and capital value would have worked out this year. Instead Jake shorted the QQQ when it was dropping (probably hoping to reach his $437K retirement goal as the world plunged into recession and the QQQ tanked), and then lost (on paper) a lot when QQQ rose for a while (not sure how his position ended up as he was going to close out if it dropped a bit before expiry date, and the market did drop, but then rebounded again -- Jake seems to be focussing only on his Ukraine war vids these days.) A back-test of how this would have worked out over a 2+ year period if started off in Jan 2000, Jan 2008, Jan 2020 or Jan 2022 would be interesting.

@nervosa68

Жыл бұрын

Ditto on that..and all the little steps inbetween.

Solid strategy. I know several folks with with a lot more experience and capital than either of us who have been doing this for over a decade. Not exactly as you describe ($500k, SPY, etc) but same basic concept. Can't remember the last time any of those folks pulled money from their 401k or IRAs except for RMDs. Most of them are just living off premiums from selling CCs.

@scottwilly86

2 жыл бұрын

do you happen to know what they do if the price takes off? just pull money out of their 401k/IRA to cover the increased capital required to sell another put?

@citizenm9590

Жыл бұрын

@@scottwilly86 i don't think they are selling put they are doing covered call

Perfect , I needed this today because I’m teaching my sister in law and family . That’s all I’ve ever done is selling also. Jake I do it mostly inside of my self directed IRA that I had to get after leaving a jobs 401k plan. No taxes for capital gains for anything until obviously I taking it out. But it makes a huge gain at the end of the year portfolio value in all market conditions as you know. Thank you for this video today and yes I watched many of your other ones a couple years ago. Glad to be back.

Jake, your vids on that are on of the top on KZread. Thank you for sharing the process in such detail and a whole lotta videos.

Been doing something similar, but need to come up with a "system" and this is great inspiration. Your videos are always good and helpful. Thank you Jake!

@JakeBroe

2 жыл бұрын

Thanks Summer! You definitely have to have a set of rules you can follow and remain objective. Months like the one we are having right now is enough to scare most people away from this kind of strategy, but a month like this is an exception, not the norm.

@sk510sk

2 жыл бұрын

@@JakeBroe Just started with NVDA covered call and selling cash secured put. It has worked in this down market as well. I am a long term holder of NVDA, so I follow the stock closely.

@stevensaxon8888

Жыл бұрын

@@JakeBroe just found your channel today & watch this video. What are some stocks for a small account say under 5k? Any $5-20/share stocks for cash secured puts or covered calls?

The problem is when the underlying drops massively in value while you own it you can no longer get the premiums you need at any strike above your cost basis. So now you either sell a covered call below you cost basis or sell one way out of the money for very little premium. This strategy is nice until the market starts making massive moves.

@GilbertFleming

2 жыл бұрын

I guess this is why Jake is saying only buy stocks that you want to own. I’m going to own spa anyway

@chrisgallon3037

Жыл бұрын

I would use SPY or QQQ. More expirations and moving not as great movement on bad or good days

@Raevsky78

Жыл бұрын

Precisely. Good luck selling CC on a paper that dropped 30-40 points. You can of course try and collect pennies in front of a steamroller…

@wyatthale555

Жыл бұрын

Well you can always hedge your holdings by buying puts or selling call spreads on indexes if market conditions aren't bullish. Thats what I do

@shawnd567

Жыл бұрын

Sure but then you hold and sell CSPs to recover. You can then lower your cost basis and start selling CC again.

If you haven't heard this yet, your videos are amazing. You're very easy to follow, the pacing of the video is great, the visuals are awesome. Thank you very much Sir.

Nice video. It's really all material you've covered in other videos, but it becomes more clear when the focus is on the retirement strategy. I'm definitely looking into this. Do you think this strategy would be good in a Roth as an account builder rather than income?

@JakeBroe

2 жыл бұрын

Thanks edod! Yes, as soon as I roll my TSP (gov 401K) in to my IRA I plan on doing this.

That's all great, but do a scenario where you bought your 10 cash secured puts right before the crash of 2020, and tell the investor what to do in that instance. Someone else made a similar comment and I gave my input below, so maybe you will see one of these and comment. Thanks

@citizenm9590

Жыл бұрын

I had same question cashed secured put risk in a crash situation buying right before market crash. Is it safe to say covered call is a better play then covered call minimize the risk?

Wheel Strategy - GREAT IDEA - What do you do if you are assigned and the SPY drops say another 30 points - well below your cost basis. - The ATM cvrd cll for the next cycle still puts you below your C/b. Therefore, there would be a "net" loss. I'm doing this with LRCX and that is my situation. My C/B is 25 pts below the current price. TY

Brilliant mate!! I’ve done a few cash secured puts myself but I really love these numbers!! Thanks Jake!

@JakeBroe

2 жыл бұрын

You are very welcome djking! Cheers!

Good video, but I have one problem with it. What will you do if price will go 10% below your put strike? What strike you will choose for covered call? below price of assignment or at that price? Because if you get into bear market and you get assigned the price for call at assigned price will be much lower than 2.4% month

Running a wheel works. Be reasonable and patient. The best thing about the wheel and a long-term sideway stock is stock prices move cyclically. Thanks Jake.

Hope you will make the video on explaining the strike price soon and how to pick the right one based on other factors… bullish, bearish market…. Thank you.

@JakeBroe

2 жыл бұрын

Hey Aziz! It's all mixed in with my buying and selling, but generally I always just go straight at the money when picking a strike.

Observations: Selling at the money calls increases your chances of being assigned, which has bad tax consequences (short term gains VS LT Capital gains). The better idea is to never get assigned by simply rolling the options, after all you are holding the underlying as a LT investment. That generally results in lower option premium income when the rolling occurs (but the extra $$ is actually locked up as an unrealized capital gain, which is OK). As Jake also pointed out the options premium income is taxed as regular income which will reduce the actual annualized return and land you a hefty tax bill at year end.

@zachnicholson7924

2 жыл бұрын

What if you keep rolling cash secured puts for a year without ever getting assigned? Will they be long term gains?

@freddybenelli9100

2 жыл бұрын

@@zachnicholson7924 No. Each time you roll to a new put contract, you are closing your previous position and entering a new one. The only way to get long-term capital gains treatment on this sort of trade is to hold a given contract longer than 1 year, which obviously isn't possible when they only have 1 month to expiration.

Thanks Jake, I like it. Not much more risky than just holding SPY. Got to put it somewhere guys. And the more you put your calls OTM, the less risky. Of course less premiums. One other thought is one could just do the covered calls during less volatile periods skipping the put. And the puts on days like today. But holding SPY without options lost today so options work!

Well articulated! Staying with the shares will also help to collect dividends 4 times a year

@JakeBroe

2 жыл бұрын

Very true! Cheers Prasad!

Thank you for making this video!

@JakeBroe

2 жыл бұрын

You are very welcome Viktoriia!

Jake, I'm NEVER disappointed in your videos!!!

@JakeBroe

2 жыл бұрын

Thanks Joe! Glad you like them!

For those with less funds would you say IWM is a good substitute for SPY? Mainly asking bc I have enough for 1 CSP of IWM and was thing of wheeling it until I get enough funds to upgrade to QQQ, and then SPY ifI snowball up to it

Thanks for the video. Do you run into any T1/T2 problems doing this? Or are those not a factor due to margin?

New place coming together nicely Jake!

@JakeBroe

2 жыл бұрын

Yes it is CB! Cheers!

Liked and subbed. This is the clearest explanation of the Wheel Strategy I've ever seen. By the way, the Wheel Strategy works in Canada, too!

@JakeBroe

2 жыл бұрын

Welcome to the channel John! Great to have you with the channel!

Another great video Jake. Thanks

@JakeBroe

2 жыл бұрын

Thanks wannaknow! Cheers!

Interesting video. Does this scale longer term as the market rises? For example, let's say SPY rises 20% is now sitting at $525/share (your $437 example +20%). Now you don't have the capital to run 10 calls/puts per month, you can only do 8. Or do you think the option premiums at $525/share * 8 contracts will still generate the same amount of income?

Love the video Have one question what you do if the put is assigned well below the strike price what strike price would you use to sell your call example sell SPY put today one strike out of the money at today strike price 415 for $14.70 if SPY moves to 410 and you are assigned at 415. do you use the 415 as your break even when you sell your call ?

Love the video Have one question what you do if the put is assigned well below the strike price what strike price would you use to sell your call example sell SPY put today one strike out of the money at today strike price 415 for $14.70 if SPY moves to 410 and you are assigned at 415. do you use the 415 as your break even when you sell your put ? Thanks

Excellent as always

Jake, you're really, really good at explaining things/concepts etc; it's wild- keep it up as you always do :) Still can't believe how shocked I was to see you in the Graham Stephan testimonial for his YT course

@JakeBroe

2 жыл бұрын

Thanks Lalit! I'm in a testimonial for Graham's course? I didn't know that.

@LalitDevraj

2 жыл бұрын

@@JakeBroe Yupp, you, Jake Tran and a couple others- amazing to see how you literally grew so much with literally the consistency- big ups :)

Wow! Definitely an awesome strategy will try it in the future when I get that amount for collateral 🙏🏼. Thanks always for the excellent content!!

Just to let you know, I opened to sell a cash secured PUT. expired feb 18 and I earned $1078. I'm thinking of doing this again. Since times are shaky (war in Europe? Fed raising interest rates? etc) Would it be less risky to invest in 2 week Puts instead of 4 week puts?

One day when I have my debt in check I’ll be looking through all of jakes videos to learn all of these complicated things I don’t know about.

@JakeBroe

2 жыл бұрын

Solid plan Mike! No worries, these videos aren't going anywhere!

I have tried to do this for years on different stocks. Haven't had too much success. Do you always sell at the money or if assigned, do you always keep your short call above your purchase price minus any premiums received? The volatile markets make the premium great, but are hard to manage. Are you having success doing this? Thanks so much.

Thanks my man Jack, I’m always looking for a better way. And you found it as always. What is a good time to call you. I tried the other night but we missed each other. Thanks again. George.

how do you know which stocks/etf's are good for selling covered calls? im very new to options trading and would like to start so im doing just covered calls for now.

i did half this strategy with CC and each time buying more stock. And it worked great for 6 months. the market took a big tumble on my volatile tech stock and i sold and still managed to break even. Time to play the other side.

This is awesome. Thank you.

@JakeBroe

2 жыл бұрын

You are welcome R C!

Great video. Will be doing this strategy when the market is less volatile

Great video, Jake. I really like the wheel. I haven’t tried it yet but want to. It just seems too good to be true.

@JakeBroe

2 жыл бұрын

Haha, the deck is stacked in favor of options sellers. Unfortunately those are the people with all the money already...

Jake, there seems to be a flaw in the strategy with regard to potential loss of capital if the particular stocks drops significantly whilst you sold a CSP. On CC’s any loss is just “potential” but you still would have to add capital to then sell another CSP. Have you done a video on the risks involved or would you consider doing one?

Great explanation Jake. Thank you. 🙂

So if I understand correctly i would always be selling or buying near the money. What happen when we see the S&P drop like it did in the past few weeks? If I would have sold a put when it was at 480 collected the premium but it is now the S&P is trading at 435. I would have lost 45 (or 4500 on one contract) minus the premium i collected to offset the loss. Should I be selling a call now at near the money at 435 and continue to execute the wheel at the lower price in the hope that it will go up sometime? This seems to be the issue when the price drops on everything as it has over the past several weeks. Thoughts? Great video by the way and a very clear explanation. Thank you.

Well explained. Thanks Jake. Simple strategy and very low risk. Brilliant!

@JakeBroe

2 жыл бұрын

Thanks Rhoda! Cheers!

@TR-lh9yz

2 жыл бұрын

This is NOT a low risk strategy. If you sell an ATM put naked and the market moves down, you lose a ton of money. Unlimited risk!

@ts4426

2 жыл бұрын

@@TR-lh9yz but with this strategy you aren't naked. It being a cash secured put means you aren't naked.

@TR-lh9yz

2 жыл бұрын

@@ts4426 No it doesn't. Cash secured just means you reserve the money in your account to buy the stock at the put strike if you get assigned. It's "naked" if you don't have another long put protecting the downside. A naked put has unlimited downside risk whether it's cash secured or not. Say the stock is trading at 100 and you sell the 90 put. If the stock drops to 80, you lose $1000 per contract whether it's cash secured or not.

Awesome info!

great explanation I've been learning option myself for the last year and this so far my favorite strategy ... have you try naked put option? and poor man covered call?

If you are going to trade 10 options, you should time spread them so that your risk is more manageable if the market has a quick move.

@JakeBroe

2 жыл бұрын

You can do this if you like Ivan!

Interesting strategy. I see comments concerned over the price of SPY declining which as you say we're not bothered by, however, I see the problem as too much rise. Say you've got your $437k ready to go and you get assigned at $437 (collecting $6k towards living expenses, and $5k to be reinvested). You then sell a CC at $438, collecting the next month's expenses and another $5k to reinvest. But during this month, SPY goes up to $455. You have your sold SPY for $438k and have $10k of reinvestments, but the cash needed to secure the put would be $455k. You would be short $7k. You could sell a put at a lower strike, but would receive a lesser premium, and therefore less to reinvest. It seems in a bull market, one would constantly be losing ground on your purchasing power to sell CSPs. Something to consider, I suppose. Love the videos, Jake. Thanks.

@art_without_borders

2 жыл бұрын

I have exactly the same concern. Wheeling is better for the stocks like AMAT which is channelling. SPY is usually goes up unless it plummets. If you sell CC with the strike price 438 on the SPY that is 437 today, in 26 days it will be higher than $438, most likely. So, in 26 days, (actually sooner) not only you would be better off if you didn't have the CC, you wouldn't be able to restore 1,000 shares of SPY, as by that time the price of SPY will be too high.

@cleaner1984

2 жыл бұрын

Very interesting point! One thing though, if the price of SPY goes up from $438 to $455 like in your scenario, yes the cash needed to secure the new puts would be much higher ($455k). But the premium you would receive for these CSPs at this strike price would also increase a lot so you would probably make up for the increase in cash needed to secure puts (provided your capital can still let you afford to sell the same amount of Options contracts).

@onatski

2 жыл бұрын

on a margin account, you would only need less than 10k to sell a naked put on SPY and you only need less than 25k if you do get assigned shares.. i do not recommend this if you don't have the full amount to cover but in your scenario, it would work in a margin account..

@buckjohnson8360

2 жыл бұрын

Or maybe you would have to sell one less contract

Hi Jake, this short video was great again, as usual. What happens if you are assigned, have to buy SPY at 437 and then, or before it falls to 400? Where would be the next call to sell? (To keep the wheel running...)Thanks

@thenewfire

Жыл бұрын

Thats up to you. Some people just always sell the Call At The Money. Meaning you can lose capital when it gets assigned. But you get a very good premium and then continue wheeling. I personally put my strike price at the exact price I purchased. Sometimes it takes me much longer to get out of the equity, but if you don't mind owning SPY, that is fine. Practice a few strategies on ToS. I would set a strike about 435 though using your example.

Hey jack how is your exit setup for option selling? Like when do you take profit and cut loss, in terms of percentage thanks

Hi @Jake, I want to try options, but I do not have enough money, Fidelity give me only 1 level of trade option(Covered call writing of equity options.) Do you know, how can I improve my account to be able to use options? Maybe be exists some stocks with lower price, that growing like sp500?

Hi Jake.... When you retire and start applying this strategy, what delta would you be looking for when selling your puts/covered calls?

@thenewfire

Жыл бұрын

Looks like he was doing them both right ATM.

In the current market would you still try to sell a put to enter and plan to get assigned or just buy the shares and sell the calls since that's more a bearish strategy?

Thanks. Been doing that, but with individual S&P stocks. Having a blood bath at the moment but will keep going.

Excellent video

If option is in the money at time of expiration, seller is paying higher value for a stock whose value is lower. Example: if price of spy is 430 at time of expiration, that will be premium amount minus ((437$ strike price - 430 price of stock )multiplied by 100). You have to put stop loss. How many % is good?

@JakeBroe

2 жыл бұрын

I am not going to use stop losses. I don't care if I am assigned or exercised on. I just continue the wheel and trust that I'll win more than I lose since that is what the options formula favors over the long run.

Love the video! Quick question, why do this with SPY and not QQQ? Or is that simply a matter of personal taste/risk? Thx!

Can you update on how you handled spy downed to low 400 now. Were you assigned, or rolled out? How did you sell covered calls now if did get assigned at that high?

Hey Jake, always appreciate your videos! What's been the historical (say 30 years) return for this strategy after taxes?

@r4rasa

2 жыл бұрын

If you always win you can make good returns on it but its not the case always

Great strategy: wash, rinse, & repeat. Thx. for sharing.

Great video! This is precisely what I’m trying to do. I’m targeting 3 more years to reach $439K in my trading account.

@JakeBroe

2 жыл бұрын

Solid plan Alondo!

Awesome video… noticed for the break even you didn’t have the cost of the options included….FYI…anyways love the idea…👍

@JakeBroe

2 жыл бұрын

Thanks Brian! I appreciate the support!

Great video as usual, but I have a point, you should buy and sell far from ATM Because high move up or down will cost you a lot capital , less returns but more safe I have subscribed to your channel 🙏🌹

@JakeBroe

2 жыл бұрын

Welcome to the channel Mohamedha! Great to have you with us!

@andis9076

2 жыл бұрын

@mohamedha578 Why high move UP cost a lot of capital ?

Great video as usual. Thanks for explaining why anyone would buy your covered call. It seems like easy money to sell covered calls, so I was confused about why anyone would buy. If you're making easy money, somebody must be losing easy money. Wouldn't it make sense to invest in a leveraged ETF that just sells covered calls for me? Or do those not exist for some reason?

@UncleDanMoney

2 жыл бұрын

Leveraged ETFs buy daily options and suffer from high theta. Never buy those long term. Go look at a ten year chart. Selling covered calls after you have lost on your puts and got assigned is just locking in losses. Won’t help you retire.

Awesome sounds great thank you so much for your help I really appreciate that you are much better than other KZreadr, They are selling course and Waste time, to give you something Tough doesn’t Wake money.

Hi .the credit that you get up front for selling a cash cover put where it go ?? Or they hold it till the expiration day to credit it to the account ?? Thanks

How do you feel about using this strategy on a cheaper etf so not as much capital is required?

I like the way you think. I like the flow chart. Nice

@JakeBroe

2 жыл бұрын

Thanks Kevin! Cheers!

Question: What are the pros & cons of using this "wheel" approach compared to just selling covered calls as you showed in your "How to Earn 20% a Year in Your Roth IRA" video? Which one do you think is more profitable? Which one has more risks, etc.?

@JakeBroe

2 жыл бұрын

Hey TC! I think the Wheel Strategy is more profitable. I just kept to only the covered calls side in the previous video to keep is simpler for people to understand.

@thrivingcreator

2 жыл бұрын

@@JakeBroe Thanks Jake! Do you think the wheel strategy has additional risks over just selling covered calls?

You’d make such a great professor!

One problem with the assumption of 10% per year for future returns is that historically there are 20-year periods of 20% returns followed by 20-year periods of 0% return. Yes on average you're getting 10%, but timing is critical

Jake, if you were in the place where you were retired and you had $437,000 and you were investing in spy… Would you write any other options and other companies? Will you still play the option game with other stocks? Or would you stick to using the wheel strategy on spy?

Good morning Jake. We shared a message in which I wrote that I had heard that SPX is taxed as a long term capital gain even if you held it less than 366 days. Here is the info: " The other reason is that the SPX is settled in cash. When you trade Options on a stock, and it expires IN THE MONEY, then you either have to take ownership of the stock (when Selling Puts) or sell shares of the stock (When Selling Calls). With Index options, like SPX, OEX, NDX, etc, since they settle in cash, part of the gain is considered Long Term by the IRS. Basically, 60% of the trade is Long Term Capital Gains, and 40% is Short Term Capital Gains, REGARDLESS how long you hold it (in my examples above, only one day!). So there is also a tax advantage in using SPX."

@JakeBroe

2 жыл бұрын

I don't think I understand this Gilbert. I am not sure why if you held the ETF for less than a year why any part of it would get favorable long term capital gains.

@GilbertFleming

2 жыл бұрын

@@JakeBroe I have so far seem to video options gurus who said that you were taxed less on SPX. I also don’t know why!

Jake I hope you can address this in your next Q and A? How would you change this video, if at all, given the current market conditions? In the video, SPY is at $437. But today, it is at $413. The warnings were that the S and P was at a high and declining. Would you skip the transation time? Or move ahead in the hopes that it would work out over time? I sold one put for April 29 for a strike price of $436. I bought to close and it cost me $1705, since SPY had declined to $390. What would be the pros and cons of holding on? I guess if I would have held on, I would have 100 shares at a loss ($436 - $413) of $23 per share?

@62orbetter33

2 жыл бұрын

Hello Jake. I’m reposting this, from two weeks ago, hoping that you’ll see it and that you will include it in your question and answer session that you’re gonna be working on. By the way, I sold a put option for SPY at $385. Well, it expired yesterday. And I’m the proud owner of 100 SPY shares that I’ve lost about $15 per share! How should I play this on the wheel strategy? Should I try to sell call options that are outside of the money. So I don’t lose my 100 shares. If I lost them now my paper loss would become a real loss!

@memefaker9065

2 жыл бұрын

@@62orbetter33 Tried backtesting with 1 option of SPY starting 1/1/2022 and trading option for last day of month each month @ +/- $10 strike of price on 1st of month. Ended up with -$4,156 or -8.96% which destroys the alternative of investing the $47,496 (SPY price on 1/1/2022 x100 shares) and ending at $38,423 today for a whopping $9,073 loss or -19.10%. Would have been assigned put contract on 1/31/2022 @ -$1,090. Then you'd end up selling shares on 3/31/2022 @ -$782.00. Then you'd be assigned put contract again on 4/29/2022 @ -$3,782. In May, June, and July your covered calls would make $1,927 while you shares decreased in value by about $2,777.

@memefaker9065

2 жыл бұрын

@@62orbetter33 Not financial advice: if I were doing this strategy, I'd sell on 1st of month for last of month option contract @ +$10 current price for call or -$10 current price for put (put if you don't own the stock). If market is crashing, you're likely to lose money, but nearly as much as if you had just bought and owned the stock.

When running the Wheel strategy, do you usually close the trade when you reach a certain profit amount, or do you typically let it run to expiration? Thank you

@thenewfire

Жыл бұрын

If you're over 60 or 70% profit amount, BTC. Lots of articles online about this. But the last 20% of the time of an option contract moves very flat compared to the first half. Use that time to your advantage. Try to double the amount of contracts you get to sell.

@John-iq2zt

Жыл бұрын

You can always buy back and roll over.

What a great strategy! This really looks good.

@JakeBroe

2 жыл бұрын

Thanks Donnie! Cheers!

Correct me if i m wrong: what happens in the below scenario? Lets say one has sold a cash secured put as the first step and it got exercised because the market was going down. By the time the shares are assigned, if the market is still going down, the value of the original capital will be less than the put strike price, so you are already in loss (unrealized loss). The second step is to sell calls, however since the market is in downtrend, if you sell a covered call with a strike price below the original cash secured put strike price and (again unfortunately) if that gets executed, you are realizing a loss on your capital (minus the two premiums that you received). Or, is it always recommended in the second step to sell calls with a strike price of equal or more than the strike price of the cash secured put strike price, just so that you will preserve your capital?

@TR-lh9yz

2 жыл бұрын

Exactly. This is a terrible strategy and your example shows that well. If you sell a put and the market drops below it, you could lose a ton of money. You have no downside protection on a short put, it's unlimited risk

@rakshere

2 жыл бұрын

@@TR-lh9yz right, thats what i thought. this might be good when the market is already in a correction mode, say when the SandP is already corrected like 15%, then one may sell put and the downside risk is lower

@TR-lh9yz

2 жыл бұрын

@@rakshere No matter what, if you want to sell a put you are always better off also buying another put further out of the money to spread off the downside risk. Much safer, better capital/margin efficiency. You'll sleep better at night. The guy who does this channel doesn't understand options at all.

@TR-lh9yz

2 жыл бұрын

@@adamwright9381 Not surprising. There are so many things in the video that are simply not true. He doesn't understand options at all.

@guillermocrespo8144

2 жыл бұрын

@@TR-lh9yz Risk is as if you own the stock. Going to zero. Unlimited risk is selling a naked call. That is if your broker wouldn’t liquidate the position quick enough,,,

one condition i would add is...stay sidelines/ close positions when vix >20

@rpuggal

2 жыл бұрын

Why ? Selling premium when vol is elevated is the best time to do it. Vol is always mean reverting. Won't stay elevated for ever.

I did this around the time you made it with 1 put it payed 1160. I closed it 3 days later and kept 1000 , I could of let it run for 20 days longer and got full pay but thought I would do a second one and get paid twice in a month. For the record I have not yet done the second put yet because of the increased price of shares .

@kitchensfrance4782

Жыл бұрын

I do this all the time, close it out if it hits around 90% and go again on something else suitable or wait for it to come back down a bit

Jake , thank you so much for your great explanation .... Jake , my biggest concern in this beautiful wheel strategy is the STEP # 4 ( at 6:47 ) . why ? let me give you a worst case scenario ...... if for example a " black swan event " starts forming at the stage 4 , and stock market continue going down by 60- 80 % , then how we can exercise or execute " SELL COVERED CALL when stock market is in a FREE FALL and chance of recovery is 3-5 years ??? CAN you make another video , and explain WHAT we should do and how we save our 437 K , at stage# 4 , if a "black swan event" happens in this " wheel strategy )

Jake, do you buy to close earlier to free up buying power?

Jake, in a cash secure put and covered call, if the option is not excercised, how do you close it? Thank you for your time and attention?

@JakeBroe

2 жыл бұрын

If it is out of the money, then it expires and goes away. You don't have to do anything. If you want out of it before expiration, then you have to buy to close it back.

Hi Jake, I'm glad you had that part at the end about buying further out of the money...i kept thinking "why not give yourself a better Delta with a slightly further OTM strike price to help avoid being exercised". Also, when selling CSP's, why not avoid the 3rd Friday of every month option expiry date so you don't fall into that market stall that typically happens (as you've explained) the 3rd Friday of every month. I realize trying to time the market is a fools errand, but seems fairly reliable that there will be a stall so why not ride through it with a dif Friday expiration date which "could" help you avoid being exercised?

@rafaeleduardovalbuen

2 жыл бұрын

He has talked about this before. He likes to have as much liquidity as possible which is why he always trades the 3rd Friday

@JakeBroe

2 жыл бұрын

Hey Josh! I was not trying to make this video any more complicated than it needed to be so I avoided talking about delta. As for options dates, you are correct in that if you are selling cash secured puts, you might want to avoid the 3rd friday (when the market sells off). However, if you are selling covered calls, then maybe you do want the 3rd friday if this helps you not be assigned.

@arunsaibk

Жыл бұрын

@@JakeBroe when is the best time to sell cash secured puts if it is not 3rd friday?

In another of your videos you recommend exiting an options contract before expiration. I believe that was on Vertical spreads. So in this strategy, I'm assuming you always hold to expiration? Or would you ever close the position early?

thanks i just stared this strategy a month ago so far so good ive made like $2500. So far so good.

Jake, great overview of the Wheel Strategy. Also, I love your Ukrainian War coverage. I am wondering if you had thought about continuously selling covered calls on high quality tech stocks that have been beaten down in 2022 (NVDA, MSFT, AAPL, AMD). Their WEEKLY premiums for At-The-Money Strikes are 2.5 to 3.0%, which means someone is basically paying you the entire stock price over a year or giving you a lot of money to live on while you maintain ownership of the stock (assuming you keep buying it when it is called away and immediately selling another covered call. Of course you have to be selective on the stocks and you want to have a basket of 8-10 stocks (including financials (JPM), industrials (CAT), but stocks you want to hold long term.

Jake! What do you think if on the CC side of the ☸️ i sale 1/4 of my 30-day contracts every week so i can take advantage of price increases? (obviously bull market hypothetical)

I just got an audiobook about options. Im gunna follow your advice.

Hi Jake , it is very nice your solution. I have a question, will you close the contract early if you got over 70% profits either sell put or sell call ? Or you just leave it expired 1 month as it is . Thanks

@thenewfire

Жыл бұрын

Close that puppy early. The next 30% can take just as long as the first 70% took. You can double how often you get to sell this way and twice the contracts at 70% profit = 140% profit.

This works if the market remains static, which it never does. If it goes up too much, you need more capital in order to be able to sell 10 CSPs. For instance, SPY was close to 480 recently, so 437,000 wouldn't have been enough to cover 10 contracts. It also doesn't work if the underlying ETF drops too much, because then you are just forced to hold your shares and either attempt to sell CCs at a lower strike or sell at a higher strike and get less premiums. Your examples are good for one month, but it would be fascinating to see how this plays out over a year with real examples. Thanks for the video, as it's a more realistic way to "retire early" than the people who are delusional enough to think they'll ever have enough capital to live off dividend income. I've been selling options for awhile, and it's really only been a problem when the underlying stock falls too much, and then I'm forced to either take the loss or try to sell calls at lower premiums, while hoping that the stock recovers. At least you know SPY will recover at some point.

@GilbertFleming

2 жыл бұрын

Would mutual fund prices be more stable than individual stocks?

@reelhawksstudio

2 жыл бұрын

Buy more shares if it's too low, it'll reduce your cost basis.

@hankking4878

2 жыл бұрын

I agree with what you say here this does not work the way he explains it. If it's static yes it will work but it's not prices fluctuate up and down if it's down then you're forced to sell at a price lower than your basis.

@andis9076

2 жыл бұрын

@@hankking4878 That's true. He should expose the risk if holding $437,000 when the market crashing like right now.

@rpuggal

2 жыл бұрын

@@andis9076 the risk is no different than if you were just holding spy shares and not doing the wheel on it. He's assuming that the price will never move lmao which is totally untrue. The example in the video is too simplistic and should be talking about selling spy puts at a certain Delta regardless of price and same for the call side. As the price goes up you need more doller to run the wheel or reduce number of contracts sold. The video is way too simplistic and looks like he's never done the wheel himself lmao and just found out about it 5 mins before making this video.

Thanks Jake

@JakeBroe

2 жыл бұрын

You are very welcome Kevin! Cheers!

Do you automatically get assigned if the price drops to your strike price even if the contract is still not expired?