The Proprietary Safe Wheel Strategy | 03/14/22

Every Monday morning at 7:15 a.m. Pacific time in my live streams, I am fully revealing my Proprietary Safe Wheel Strategy for free.  Using my 28 years experience, I’ve developed the Safe Wheel Strategy to cancel out the risks associated with the normal wheel strategy.  I also design the system to only need my attention once a week on Mondays, and on rare occasions Fridays.  And this is what I call a level 5 strategy. 

Now, what you see on the screen is The Trader Matrix.  I developed this to make it easy to distinguish between trading levels.  After taking over 50 online stock and options courses, I’ve found that I’m the only level five trader that is not using portfolio margin.  Portfolio margin is used for large accounts over $100,000. 

Now after 28 years, I’ve only found one edge in trading and that is selling option premium.  Level 5 trade systems are the only way to sell option premium efficiently and safely.  For a better explanation of the five trading levels, see the link in the description for the video called The Five Stages of a Trader.

Okay, good morning.  So first thing I want to do is just have you guys post any questions that you might have.  You can Start posting those now that way I can get to them, because if you start posting them towards the end then sometimes I kind of end the live stream and I don’t get to those questions.

Now, the second item here is my Earnings Edge Alerts.  I always like to give an update.  So you can see that on the screen here.  Last week we did Dollar General; made $300.  So I’ve got seven wins in a row–not going to win every time–but seven wins in a row is pretty good. 

Got the account starting at $5,000.  Now, it’s up to $5,940 so, you know, our goal here is to turn a small account into a large account.  This is a system where you wanna have a small, you wanna start with a smaller account and try to make it grow quickly.  And there’s some risk here, but this is doing quite well.  [I] made another $300 last-last week. 

Okay, well let’s get to The Safe Wheel.  Where are we with the Safe Wheel?  So let’s go to that particular account and we’re dealing with Macy’s.  And we’re long 100 shares.  That means we were assigned and we were assigned at $26.50, and that was a couple weeks ago.  And we have our hedge here. 

So last week we put on a–we layered in a second layer–and we sold a put.  And that put expired worthless, so we just collected that premium.  So what do we do next?  

Well, we want to try to sell a covered call for greater than this $26.50.  You can see Macy’s is trading around $24.  Let’s see what we can get.  So I’m always referring to the expiration cycle.  That expires this Friday.  So $27 would be the strike, you know, I wouldn’t do the $26.50.  I’d do $27 or higher and you can see I can only get around $0.08 or $0.09 for that.  So that’s not enough.  

Now, some people said well why not just sell it and get your $0.08 out of it.  I could do that, but what if Macy just shoots up, you know.  I like to take advantage of these.  I call them I guess asymmetric situations.  So I want to be prepared for that.  And I’m happy just collecting, you know, the theta that I’m going to get from the layer that I’m going to put in which is what I’m going to do now.

I’m actually going to sell another put.  I’m going to start over with a second tranche.  I’m not going to do a third tranche.  I’ll never do a third tranche only a second tranche, because my hedges won’t cover a third tranche.  

So I’m going to go ahead and layer in just like I did last week.  And again, let’s say I do the $22.  I want to go as low as possible obviously when I’m selling a put.  Well, I could get $0.22 for that, right.  So that would be good ,right.  I’m getting at least getting that 1%, but I, you know, I’d rather go to the $22.50 and take the $32 or whatever I’m going to get here.  Even though, technically, I could go to the $22.  I’m going to go with the $22 and a half.

So I’m going to sell one of these.  You see the mid price is $32.  I guess I’ll start at $34 here.  Sell one put.  Let’s see, working order.  So I’m working the order.  I’m just going to work it down until I get it filled.  Okay, so we got that filled at $32 it looks like.  So there’s $32 of premium.

Now the next thing I’m going to do is I’m going to protect my hedge.  And so what I want to do is buy a call around $5 maybe $6 right here at $27.50.  I’ll pay $6 for it; try to get it for $5.  Just one.  Just to protect my hedge.

Okay, I know that last week someone asked me to go ahead and hit that the analyze tab on this.  So let’s take a look at that.  Okay, so we do have some risks to the downside here.  You can see we’re pretty, yeah, we have some long deltas it looks like.  Let’s see what’s our deltas–yeah, got some long deltas here.  We’ve got risk of maybe $300 if we go down but, you know, volatility is going to kick in at that point and those three long puts are actually going to, you know, it’s not going to be this low because the volatility is going to make those go up.  So the risk graphs don’t really take into account volatility very well so this is actually a little too much.  It’s lower than what in reality it would kick up like this a little bit.  

And also, last week I had a question I don’t think I answered it as well as I’d like.  So let me talk about that.  Last week somebody talked about–they said that where was it–that right here: management complexity.  They said that I was using different underlyings and the part of a level five system is the only managing one underlying.  And I mentioned, yeah, I use different underlyings with this Safe Wheel, but what this means–what I’m talking about here is I only manage one underlying at a time.  So that’s what I mean by that.  So yeah I might use Macy’s and then when I’m totally done with Macy’s, I might use a different  a different stock or a different underlying, but what I’m talking about here, as a level five, is I’m only dealing with one underlying at a time.  And that’s really one of the advantages to the level five trading system.  So I wanted to clarify that.

Okay, well let’s get to the questions here.  

[Ayn_Rando]:  Up [$2,000] in the Safe Wheel, very nice.  Good.  Good so you’re probably sizing a little larger than me.  I would imagine.  Which is fine.  You can size–I’d be comfortable sizing this up.  When it comes to the Earnings Edge Alerts, I would start with $5,000 and try to grow that account.  But with this Safe Wheel, I’m pretty comfortable sizing it up.

[lusmas99]:  Friendly reminder show risk graph.  Okay, good thanks.  I did that.  

[Joe Stutzke]:  Does the system work on TOS demo account to test the flow chart?  I started with Macy’s and wanted to test it out.  It should work with the demo account.  I haven’t used the TOS demo account since I think 2016, myself personally, because I use OptionNetExplorer, so I haven’t used it in a long time.  But I would be surprised if it didn’t work.  I’m pretty sure it will work. 

Okay next.  [James Grimsely]:  why not sell the 27 for $0.07?  Yeah, so again, it’s really kind of my preference to take advantage of extraordinary situations, you know.  So let’s say that something crazy happens and Macy’s goes to $30, you know.  I want to take advantage of that.  I don’t want to just make $5 on something, you know, when I could really make some, you know, a decent chunk of change.  You know, I like that asymmetric play and I try to keep it in play as much as possible.  And I’m not gonna take that play out for $5.  Okay.

Next question [John Vizcarrondo]:  if the second put gets assigned do you try to sell calls against both?  Yes.  I will.  Typically the first tranche won’t have any kind of–if that one gets assigned the first tranche is not going to have any premium available typically.  So I’ll only be selling against one.

Next question [Changis Hakim]:  my first time seeing this you mentioned something about getting 1%.  What is that 1% of?  It’s the actual price of the underlying.  Okay, so if I’m going to–just it’s a strike price.  Okay, so if I’m going to sell the $22.50 strike like I did.  I want to get at least $0.22 or $0.23 out of it.  So there’s kind of a minimum requirement that’s kind of simple to calculate for how much premium to collect.

[lusmas99]:  thanks for the analyze tab. I would like to see a new position before shares assigned.  A new position.  Well, just keep reminding me every single time.  I’ll show the risk graph if you want.  If that solves that problem.

[Ayn_Rando]:  Buying six tranches and selling three…still not using much of my buying power and leaning bullish.  Yeah, so you’re doing like three times what I’m doing.  That’s why you’re up more, makes sense.  

[Changis Hakim]:  You said there was some risk here?  What is the risk?  Well looking at the risk graph it’s the risk is to the downside.  So we don’t have any risk of the upside you can see with this particular place where we are right now.  But this, like I said, there’s your risk $300 on this particular position that we’re in.  The combination of all these positions that’s your risk.  But like I said, when the volatility increases this risk is going to be less.

[James Grimsley]:  If you had $50,000 would you still just do Macy’s or move into several stocks to avoid the drop risk?  No, I would still just do Macy’s.  The system’s set up to work with just one single underlying and it just makes it way easy, a lot easier, to manage.  I’m here to make things easy.  I’m just coming in here on Mondays and for 15 minutes and I’m looking at this thing and I don’t even think about it until next Monday.  Now occasionally on Fridays towards the end of the day, I might check out Macy’s to make sure that it’s not, you know, super high or anything.  Like I don’t need to sell that call–that $5 call, but I don’t want to spend a lot of time doing this and increasing it with different underlyings and creating a bunch of time that I need to spend on it.

[Ayn_Rando]:  Would you ever sell a put below your hedge to help pay for it.  $20 sell some 18s.  No, I need that hedge to be fully functional.  I don’t want to take away the function of that hedge.  I don’t want to take away the power of that hedge.  If Macy’s drops to $12, I want that hedge to kick in; and again, that would be an asymmetric situation where I’m going to make good money.  I don’t want to take that away by financing that hedge like that.  No, I wouldn’t do that.

Changis says thank you.  You’re welcome.

[lusmas99]:  Will do.  Good

And [Changis Hakim]: thank you.  Again.

And let me see here, make sure that I’ve got everything that I wanted to cover. Okay, good.  Just one thing I like to say before… 

I have another one here [Ayn_Rando]: thank you!  Sure.

If the P&L is not real, what else are they trying to conceal.  Okay, thanks guys.


Link to Safe Wheel Guidelines & Flow Chart

Link to my Earnings Edge Alert Service

Link to My Safe Wheel Back Tests GO TO

Link to The Trader Matrix Video

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