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 5 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 this morning. First thing I need to do is a sound check. So, let me know in the comments that you can hear me. Good. Sounds good. Okay, all right. First thing, I want to say is make sure that you post any questions that you might have to make sure that I can get to those questions. So if you post them now, I’ll be sure to get to those. If you try to put them in at the end of the live stream, I might miss those.
All right, you know, I trade three separate systems. I’m going to talk about the first two systems before I get into The Safe Wheel. So the first thing is The Premier Level 5. This is a gold standard and the key to consistency and profitability. One of the keys is low drawdowns. And in order to keep your drawdowns low, you want to be hedged. But you don’t want to just be hedged, you want to be proactively hedged. Which means you want to be a hedge before the crash occurs. Okay, and there’s really only… Also, the key to the hedges, you want to have a hedge that doesn’t drag down the portfolio. In other words, you want to be able to make money while you have that hedge on. And when there’s a crash, all assets become correlated. And there’s only one asset during the crash that, you know, is going to go up and that’s the asset that you want to be long and that asset is volatility.
So that’s what The Premier Level 5 brings to the table. That’s just one aspect. It brings many, many aspects to the table. I highly recommend it. Like I said, it’s the gold standard and it’s up about… You can see the P&L here. It’s up about 1.5%-2%. I’ve been in it for a couple months but the market has been down about 7.5% since we got in. So you can see, it outperforms the market with very minimal drawdowns.
Okay, next, let’s get into The Earnings Edge. I think everyone’s going to find this very interesting. Let me get to the right account. Look at that account balance. $5,270, okay. So, it’s only up 5%. Now, my record was 14/3/2. Now, obviously my record is 14/4/2. We took a loss. Let me go to the account statement here. And we went with $PLAY, and wow, big loss here. $1189. I have to say, I took a big loss. Maybe, one of my students took a loss with me. Most of my students didn’t take that big of a loss, but that doesn’t matter really. But one of the things I have to say, I always say this trade is risky and you’re going to see that volatility and here is a good example of that. I did add a filter based on this last trade, so kind of tweaked it a little bit to prevent this from happening again. Will it prevent it from happening again? You just don’t know, but there is risk in this trade. And now, this trade is only up about 5%. Now, still at 5% when the market is down 13% year-to-date. So it’s still outperforming but there is risk in this trade.
And also, there is an edge in this trade. And if I believe that there was not an edge, I would not trade it, and I need to make sure that I can mine that edge. And if I believe that I have a problem mining that edge, then I will shut the whole thing down. But I do believe that I can continue to mine the edge and I believe that it’ll be a profitable system. If I didn’t, like I said, I would shut it Down. So this one, again, up 5% was up like 20%, so this can happen with this Earnings Edge. This is not the gold standard like The Premier Level 5, okay.
All right let’s get into The Safe Wheel and that’s where we have Macy’s. We got called away two weeks ago and then last week we put on a short put and that short put expired, so we kept that premium. So here we are with Macy’s. It’s trading around $24, and we have this put hedge on. So the question is: is the put hedge within 70%, the strike right here, $17 strike, within 70% of the price? And the answer is yes. Because if it wasn’t within 70%, let’s say it was 50% or 60%, we would roll this back up to 80%; within 80% of the price. But because it’s within 70%, we’re not going to roll it up. And if you have any questions, make sure to put those in the chat.
So what do we do next? We’re basically starting the wheel all over again. We already have our hedge. What do you do when you start the wheel? You sell a put. And of course, we’re going to buy that long call to protect this hedge. So we’re in Macy’s. We’re gonna use the one that expired in four days at the end of the week. We want to make sure we get enough premium, more than $24, or $0.24, out of the money. So this put, this $23 put, is out of the money. And it’s more than $24, so I’m gonna sell this one and I’m only gonna do one because I’m dealing with an approximately $5,000 account. If I got it up to $10,000, I would do two. Okay, so mid-price, $30, let’s go $32. Okay, filled right away.
So now we have our premium for the week, and we’re going to protect this hedge by buying a long call around $5. I’d pay $6. Let me get the $26, right here, for for $6. I’ll take that. For $7, that’s too much. So I’ll go with $6. Okay, got it for $6, good.
All right, so now we have our position on. We collected #32 – $6, you know, $25. And what we’re looking for is this $25 to come off and for the put hedge to not go by down by as much as $25. Because it’s got a longer maturity date, so it shouldn’t depreciate by $25 or more. And so, we’ll continue to make some money here. How are we doing with this one? Up $832. So The Safe Wheels up over about 16.5% year-to-date. with the market down, about 13%. Let’s see, if I have any other notes here that I wanted to go over. Also, The Safe Wheel guidelines are available. I have those at a good discounted price right now. I haven’t changed the price yet so you can always get access to that. There’s a link in the description.
Okay, let me get into answering questions.
Walter [Paul]: I’m long the equity and looking to sell a call for 1% premium a week out. What if I can get 2% by going two weeks out or three but three weeks out?
I wouldn’t want to go longer. Typically, what’ll happen [is] you’ve got the nearest premium and that’s the one you want to sell, and that’s the one that’s going to depreciate the fastest, and that’s why we’re selling it. And so that’s the reason why we stay near term because those depreciate faster than all the rest of them, so there’s more premium to capture.
Charles: good morning.
Deborah [Zimmerman]: I noticed one of your videos there was a profit in Macy’s of a hundred bucks, but I opted to continue the wheel. Is there a percent profit that I’m looking for or is there a certain time that you’ll exit?
When I cannot collect any more premium… So in this example, I believe I was holding 100 shares. And so if I… Whatever strike price that was, let’s say it was $24. If I can’t sell the $24 or $24.50 or $25 strike and collect any premium, I’ll start another leg or another structure or another… What’s the word I’m looking for? I don’t know. It’s on the chart here but I’ll do another one where I’ll sell another put. So I’ll have two positions. Now, when I get to the point where neither one of those two positions can get me any premium. Like I’m too far out of the money. I own 200 shares and I can’t get any premium. That’s when I’ll use the hedge. I’ll just take the hedge. I’ll sell it and I’ll just clear out the position. That’s when I would do it. I could have done it with Macy’s a couple weeks ago and made more money. That’s true, but you just never know. Macy’s could have continued to go down and I could have made even more money if I would have held, but it just happened to go up.
But the thing is, I make systems that are systematic, and I come in once a week. Now, on Fridays, of course, I’ll look at the market for about five seconds at the end of the week. But other than that, I do not want to deal with this thing. I’m busy. I got other things to do. I have a system and I just stick to it, and I could have been better off or worse off by doing that.
Walter [Paul]: when your video starts up, can you please hesitate your start. That’s how long I have to wait to skip the initial ad.
Okay, I’m not sure… So you’re saying when I say, “good morning, let’s get started.” I should wait a little longer? I’ll try to add that.
Okay. Universal Items: what are we doing with the three long puts in the long term? Roll them after 100 days?
Yes. So when it gets under 100 days, it means you’re getting close to… The depreciation might outpace the depreciation of the premium that you’re selling. But it’s still not going to outpace it, even at 100. And typically, we don’t get 200 days. And if we do, I’ll just roll. I’ll throw those three long puts. I’ll reestablish the the put hedges at 100 days. It should say, you know, I need to add that to the–I’m going to make a note here to add that to the program. 100 day put hedge.
Okay. Tron: you asked the question about the percentage of the put hedge to the stock price. What about the day’s expiration? Is [there a] level we should roll right?
100 days. We just talked about that.
Okay. Jerry: what would cause a safe will to have a 5% to 10% drawdown?
When you’re in that initial stage (like we are right now) where you’re selling a put and the market just runs higher and then it… Which typically you’re not going to see that kind of drawdown within one cycle, but you could get that drawdown to happening in maybe two cycles in a row, and that’s where you’re going to see that larger drawdown. Maybe even three cycles in a row that could happen. I don’t think I saw that happen. It happened a couple times in the backtest. So yeah. That’s how.
Eduardo [C]: do you think your P&L is even better because you have not used the $5,000?
Not necessarily. I mean, the way this system really… When it makes the big chunk of change is when you’re long 100 shares or long 200 shares, and you’re able to sell a call that’s kind of further out, and then you get called away. That’s where, you know, the big cha-ching happens. So I would say if I use that $5,000 entirely, that’s when I’m really gonna actually make more money. If that makes sense.
iamtheone who knocks: is technical analysis bogus?
I believe, and I haven’t seen anyone use technical analysis to outperform the market; because the problem is that you have money management. Also, it’s not just a chart but you also [have to know] how do you manage your money around that. And when you try to do that, you don’t outperform the market, the S&P 500. Show me somebody that has. I haven’t seen anyone. Now, it could happen over short periods of time, short bursts, but haven’t seen it consistently.
Will Mach: what do you think of using ratios for hedges? For example: selling a 10 column, buying two $5 calls?
That is a crude excellent way to hedge. It’s not totally efficient compared to The Premium Level 5. I mean, if you really want to get into how to hedge properly, you want to get into The Premium Level 5 type trades. But if you want to get really quick spreads, yeah, it’s better to do a ratio than it is to just do a regular spread.
[will mach]: or do something similar with far DTE puts?
See the problem with far DTE puts [is] they’re not very good hedges. That’s why we have three hedges, three contracts, to cover one with a safe wheel. And they’re not very good hedges because of weighted vega, and you can look up the term weighted vega. Ron Bertino did an excellent video on that, and that is one of the keys to being a successful trader is understanding weighted vega. And so the far puts don’t move as well as the close-end puts.
Charles McClure: you just got filled on a 26 call for $0.06, but I didn’t. Should I chase the seven?
No. Don’t pay $7. Go to the $26.50. Pick a new strike.
All right. Jms 54: hello Karl, can you adopt the size of the earning of the edge considering support [and] resistance level[s]?
No. There’s nothing this… The Safe Wheel… None of my systems have anything to do with something on a chart. Like a line, or a bar, or anything like that. And that’s what my systems are designed to not have to look at those things, because I don’t think there’s any statistical advantage to doing it that way.
Okay, I don’t see any more questions. So one more thing to say: if the P&L is not real, what else are they trying to conceal? See you in the next one.
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