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 designed 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 30 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, let’s get started today. First, by doing a sound check. If you guys can hear me, please put it in the chat . Okay, got it. Yes. All right, so let’s get going here. First thing I want to do is have you guys post any questions that you might have. You want to post those early because sometimes we get towards the end of the live stream and I miss your questions, because they don’t come up fast enough.
All right, how did I do last week with The Earnings Edge Alerts? That’s always interesting to know, I think. So we traded $CRM and you can see that $CRM is up $620 because we had profit on that a few months back and then we hit another $300 profit last week. So we hit another winner last week with The Earnings Edge Alerts. My record is 14 wins, 3 losses, and 2 ties. So getting that 75% win rate looks pretty good. That’s about where I’m at. And you can see the account that started with $5,000 is up to $6,539. So it’s up over 30% so it’s doing quite well. Maybe slightly below what my goals are, and that probably has to do with the commission rate that I’m paying, you know. The commissions are pretty heavy with this, but things are on track with The Earnings Edge Alerts. And of course, you can sign up for that. There’s a link in the description.
The next item I want to talk about is my P5, my Premiere Level 5. Now with this, this is a complete system that controls second order Greeks and it’s non-directional. So if you want to control second order Greeks, be non-directional, and be in a profitable system, this is the place to be. This one took me about four years to develop after I was already in a mastermind [group].
Now, this accounts down about 1%, approximately. Let’s go to the chart here. I think we got in this on the 8th of April. So we trade the $SPX. We only trade options on the $SPX with this system. So the market’s down about 7.5% and we’re oscillating down around 1% to break even. We’ll see how the month ends, but this is a great system. I only manage it maybe three times a month, so this is the best system out there. I don’t see anything better. And of course, there’s a link in the description for that.
Now, let’s get into The Safe Wheel. That would be, I think this account here. Okay, so we’re dealing with Macy’s and what happened? Well, I was long 100 shares, because I had been assigned. And of course, with the wheel strategy, you sell a covered call, so I had sold a cover call that was pretty far out of the money. And Macy’s just shot up. I think it had earnings so it just shot up significantly and took me out of my position. And now, I’m left with these three long, these put hedges. You can see that they’re down pretty good, so that’s just part of the system. But also, you know, I made pretty good money on those long 100 shares. I don’t know the exact number. I don’t have it in front of me but it might be a couple hundred bucks or something like that. I’m not sure.
But the question is: what do I do next? First of all, do I stay with Macy’s? Because I’m basically out of this cycle. The cycle is over because I was assigned shares so it’s time to get out, start clean, and am I going to stay with Macy’s. So that’s the first question. Well, Macy’s is between $20 and $40. Macy’s is trading at $23 so I am going to stay with Macy’s because I like Macy’s; and it’s got good liquidity; it’s got good premium; and it’s between $20 and $40, so I’m going to stay with Macy’s.
So the next question is: where do I put my put hedge? Well, if my put hedge is within 70%, so you want to be at least within 70%. So right now, my put hedges [are] at the strike price of $17 put and it’s trading at $23. So $23 x 70% is $16. So it is within 70%. I’m not gonna roll it or start completely over. I’m gonna use the existing put hedge that I have and I’m gonna keep that on, and you guys can ask questions about this if it doesn’t make sense.
Now, the next thing I’m going to do… Now, that I know I have my put hedge on already I have my Macy’s stock that I’m going to use, I’m going to sell a put. So let’s go take a look at where I can sell a put. Of course, I’m going to go in the expiration cycle that expires this Friday and I’m going to be looking at the puts, and I want to sell as low as I can, but I also want to make that 1%. So I could go anywhere from the $22 to the $22.50 because currently the price is $23. So as long as I’m getting $0.23 or higher here so I’m going to go here. I’m going to go to the $22. I’m going to sell one because I’m dealing with one contract, because $5,000 is one contract. So of course, I want to get as much as I can selling this put. Let’s see here. Working orders and we’ll work the order. See if it gets filled. We’ll have that open.
Okay. Okay, so we got filled at $26. So now we have our put on. So now the next thing to do is protect this hedge by buying a long call in the same expiration cycle. So we’re in the same expiration cycle and buy a long call. We’re gonna buy something around $5 ot $6. Here’s something right here, try to get for $5, the $25.50. I’d have to pay $6 for it. Okay, all right so there we are. We are beginning the wheel process but we’re hedged. So we’ve sold our short put at the $22 strike [and] we bought the long call at the $25.50 to protect our put hedge.
Now, how are we doing with this system? This system is up approximately 18% year-to-date, and we started on January 1st with a $5,000 account, so that’s doing pretty good. Obviously, outpacing the S&P 500 with low-lower drawdowns too. Not bad on the drawdowns at all, really. Haven’t had much of a drawdown but I expect this system to do about 10% per year. That’s what the backtest showed.
And if you want to get more information, because I haven’t gone over every single scenario, when I’ve been trading the system not every scenario’s come up, so I do have a Safe Wheel guideline and flowchart, and I have that at a really good price. And you can get that through the link in the description. So that would answer every question that you had, because there’s no way I can answer every question; unless it comes up in the real live trading.
Okay, so let me get into some questions now. Okay, good morning.
[The] Shovel says: Kool Karl in the house.
What’s up Shovel?
All right, [Jason]: if you don’t have enough capital for tier two shares, do you just take the loss?
You should have $5,000 in order to run this strategy. If you don’t have $5,000to run the strategy, you should backtest your alternative strategy before you do anything. That would be my recommendation.
Okay, Walter [Paul]: I purchased a flowchart. In many places it says for >1%. What is the time frame?
So the time frame, if I believe that I understand your question, the time frame is we’re trading in this first expiration cycle right here. So today’s Tuesday, so typically we trade on a Monday. So when something expires at the end of the week, that’s the time frame that we’re dealing with. So 1% at the end of the week. So this one, when I sold the put, I wanted to get at least $23 right here, and it was in this expiration cycle here, the one that ends at the end of the week.
Okay Joel [Bambas]: when would be the best time to add The Safe Wheel position if you wanted to increase the size?
Best time to add it? Well, I just started a new cycle right now, so you can follow the cycle that I’m in. And if you have $10,000, do two contracts of everything that I’m doing; or if you have $15,000, do three contracts of everything I’m doing.
All right, Bob {bailey]: if the put hedges between two strikes which strike do you use, upper or the lower?
You know you could, at that point, you just kind of have to use discretion, you know. If you’re paying over two dollars, I would go with the lower one. But if you’re probably paying under two dollars, I would go with the one that’s closer; but it’s either way.
Walter [Paul]: do you give any consideration to the quality of the underlying?
I’m not sure how you… You’re talking about fundamental analysis and I don’t really believe in fundamental analysis. Unless, you’re talking about the long term, like five years from now. So I don’t have any issue with the quality of the underlying. The quality underlying to me is good liquidity, enough premium to sell; you know, make sure there’s enough premium in there out of the money. You can get that 1% out of the money and the stock’s trading between $20 and $40. That to me is quality.
Okay, Charles [McClure]: if we’re just starting a Safe Wheel, do we buy the hedge you have?
I would buy the one that’s probably a little higher, maybe the $18 something that’s at 80%. So $23 x 80%. $23 x .8. Yeah. What hedge do I have? The $17? I would buy the 18, yeah. So, that’s what I would do.
[Options talk]: payoff graph please.
Okay, let’s take a look at that analyze tab. There you go. Let me make sure I have that all done correctly. Yeah, so there’s your T+0 line. Where is the… Well, the problem is is that the put hedge has already gone down in value, so this isn’t totally accurate because it doesn’t take into account the money I made last cycle which includes the premium I collected. Plus, when I sold the 100 shares that I had, for I think a couple hundred bucks in profit. So this isn’t totally accurate because it’s not taking in into account the past of what I’ve already done within this particular cycle. I call it the particular cycle because I’m still in that same put hedge, but I am starting a new cycle with that put hedge so I don’t know. Hopefully, that makes sense.
Walter [Paul]: I see silver on your list and I’ve traded silver options for a wheel for about two years. The premium and liquidity are great that’s?
SLV, that’s getting close there at $20. Let’s take a look at it. So if you’re talking $20 on SLV, if you want to sell a put… See the thing is the liquidity is not really there because you want to be out of the money so like $19.50 and at least getting over $0.20. So you’re at the money and you’re barely getting $0.20. So silver for me wouldn’t work for this strategy because there’s not enough premium.
Okay, Chanan [Siegel]: why don’t you buy a long call? How come you don’t buy a long call when you buy the put hedge?
You mean like in a combination? Like buy them all together? Like as a spread? I mean, I guess I could do that, but I want to kind of break things up to make it more simple to understand.
Walter [Paul]: A similar stock $AG trades highly correlated with SLV but without twice the premium because of increased volatility, but it’s below $10. What are the caveats in trading the wheel with $AG?
Well, it’s got to have enough premium which you just said it probably doesn’t, and it’s not between $20 and $40 and that’s the way I like to size it based on a $5,000 account, so there’s a couple problems with $AG.
Walter [Paul]: thanks for the backtest and Delta neutral strategy video.
Oh, you’re welcome. I appreciate that.
Jason: to ask the question a different way, you probably couldn’t do The Safe Wheel for a $25 to $30 stock with $5,000 because you couldn’t afford to hold the 200 shares.
Yeah, so you need to have a margin account. Make sure that you have a margin account before you trade The Safe Wheel. Hopefully, that answers your question because we do use margin.
Okay, I think that’s it for the questions. Regular margin. Yes, regular margin. No special span margin or portfolio margin or anything like that. Just reg[ular] reg. T margin. That’s all you need.
All right, any more questions? Okay, I have one thing to say.
Okay, here we go Chanan [Siegel] here trying to ask again. Let’s see. [Chanan]: I’ll ask another way, when you buy your $17 strike puts, rather than buying a call each week, why not buy a November call?
Oh, I see. So you’re saying to protect those puts, I buy a call in the same expiration cycle as the put hedge. Well, the problem with that is it won’t protect it. Because for $5, I’m not going to get anything close to that $17 strike. That’s why I come in all the way into the nearest expiration cycle. So for $5 I can get something relatively close. So I hope that answered your question, Chanan.
All right we’re going to wrap things up now. One thing to say: if the P&L is not real, what else are they trying to conceal?
LINKS MENTIONED:
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
Creating Wealth If I Had To Start Over
Link to Premier Level 5 Trade Alerts
