Good morning and welcome to my real time options trading. Where I trade a real account with real money right in front of you. Now, I’m totally transparent as I share my account value live on screen. And I’ve been trading options online for 28 years now. And I’m here to share how it’s possible to trade options with less risk and how you can even follow my trades if you choose to do so. I must say that trading is risky and it is possible to lose money following my trades.
My purpose is to help people learn how to trade a proprietary trade I developed called The Safe Wheel Strategy. The wheel strategy, as it’s known today, is a popular strategy but it comes with major risks and I’m here to help people learn a wheel strategy that does not carry all the normal risks. Now, I’ve seen people follow the old-school wheel strategy that many Youtubers tout only to end up becoming frustrated and lose money. If you’re interested in a conservative effective approach to trading options for free, you’re in the right place. If you’re interested in the back-test results of the proprietary Safe Wheel Strategy that I developed, I’ve made a video on that and I left a link in the description.
Okay guys. We are live now; bear with me here as I get this–share my screen. Okay, yeah, I’m just running a little late because I couldn’t get my mic just for some reason it started working right at the last second so here we are.
So we’re going to start this here by starting to put my overlay here. I’m going to show my screen. As you can see. Okay, good. Here we are up and running. You can see that this account here has $5,000 in it. We’re starting fresh and we’re going to go ahead and start The Safe Wheel Strategy.
Now it’s basically the wheel strategy, but it’s safer because I’ve got some hedges in there. Also, you know, what you’re going to see is it’s not going to be quite as–you’re not going to get that volatility in the account that you’d normally see. So you might not see the high points but you’re definitely not going to see the low points.
Now, the stock that I chose was Macy’s. So we’re going to deal with Macy’s for quite a while, hopefully. And the reason why I chose Macy’s was a couple reasons: 1, it’s close to $30, and with this Safe Wheel Strategy when I get below $20, I don’t like to use that stock; or if I get above $40 I don’t like to use that stock anymore. I like to keep it between $20 and $40. So because Macy’s is close to $30 a share, I’m going to go ahead and use Macy’s.
Now the first thing I’m going to do there’s three things that I need to do today. I need to put on a, what I call a put hedge, so I’m going to go out in time, 137 days out. Somewhere between 150 and 200 days. So I could have chosen either one of these but the 228’s are a little too expensive. And then I’m going to take…my hedge is going to be put on based on, let’s see here based on price.
Okay, so my price currently is–let’s just call–it $28.29. So $28.29 and I’m gonna do about 80% of that. I’m gonna get a number there so $22.60. So that’s the strike I’m going to be looking for around $23 basically.
I’m going to buy a puts. Here’s a $23 strike. It’s out 137 days $23 strike the long. I’m going to go long three of these. This is going to provide protection. So this is the first thing I could put on. It’s called a put hedge, it’s what I call it. You can see the mid-price is 169. So I want to pay a little less. We’ll see if I can get less for it; Probably not So I’ll move. I’ll work this order. Oh, my mid-price just went up quite a bit.
Okay, got the sound. Sorry about that. Can you guys hear me now? Okay, you need a recap? Okay, so let me recap.
So step–I’ve got three things that I’m uh doing here. I’m gonna–initially I’m gonna put on a hedge. I call it a put hedge. And I like to go out…I don’t want my hedge to really have a lot of theta, so I want to go out 150 to 200 days. So I could have went 137 or 228. I decided to go 137 because the 228’s are pretty expensive.
And what I did was I chose this $23 strike because I took the $28 that Macy’s is trading. I took that $28 and I multiplied it times 80% and I got a strike price of around $23. So I took the $23 and I went out and I bought this, and I bought three of them. So you can see that I executed about three of those long puts. Now, it is pretty costly but they’re not going to really depreciate very fast because they’re further out in time. So that was step one.
Now step two is to go ahead and start the wheel. Kind of more of the traditional way. And that is to take the put, sell a put, kind of a little bit out of the money. But I want to get at least maybe 10% uh 1% uh 10%. I’m sorry 1%. So I want to get like if this is 27 this uh strike, I want to get a little bit better than 27 cents, if I can. Sometimes I can’t. But, you know, that’s why I didn’t choose this one because this one’s, you know, a little closer to the money. And I’m, you know, I’m still getting a decent price here at the 27 level. So let’s see if I can continue to get that filled.
Okay just just got that field there. So now I’ve got my put on. So I’ve got three of these and I got one of these. Now there’s one more thing I need to do. Typically with a wheel strategy, you don’t have any upside risk, but the fact that I have a put hedge on this one I do have a little bit of upside risk.
So I need to kind of compensate for that. So what I need to do is buy a call, but I’m going to buy a really cheap call just to kind of cover. Just in case this thing just takes off to the upside really fast I buy something around $0.05. That would be, I’m looking at the price here, the 33.
So I’m just gonna shoot. I’m just gonna buy one of these. It’s around $0.05. This call is just to protect me. It’s really a cheap-cheap way to get protection. I might have to pay six. Okay.
Okay so there’s my position. It’s very similar to the wheel except I’m hedged on both sides. Now, again the only reason why I had to hedge the upside was because I’m long these three puts here, but this is the main crux. This is the main uh theta decay that I’m trying to capture, and it’s kind of the engine that drives everything. And so it’s pretty straightforward from that point.
I can take any questions here for a minute. If you guys want to put any questions in the chat box.
Okay, let’s see here. It says there’s no link to a back-test in the description as you said there would be. Okay, let me, let me, make a note there to add that. And this is going to be on Youtube so I’m going to add link to the back-test.
Okay, next one. Why buy three protective puts if you’re wheeling with one contract? Because there’s a possibility that I might add to my position. In other words, I might put on another contract and then I’ll have two contracts. So I need those three to cancel out so the stock continues to go down. I’m actually–I might layer in another contract so I need three to cancel out those two.
It’s a net debit strategy? Yeah so far, but see the, the uh the near side, or the closer in um the closer in uh put, that I sold is gonna uh it’s going to depreciate much faster.
Why am I buying three hedges? Because the damage can be done to the downside when you trade the wheel strategy. And so I figured out a way to pay for those hedges with the wheel strategy basically. Because the closer in theta is going to happen…it’s going to be captured much faster and pay for those hedges.
Why not just two long hedges? Because if the market continues to go down,those two hedges are not going to cover. Just two short positions that are already losing money.
So what are the possible outcomes? Well, the stock can go down and my hedge will cover. It can stay the same in my uh near the money or I’m sorry my closer in theta will kick in and make money. Or the stock will go higher and at that point, it might go higher when I own it and I can make money. Or if it goes higher, I just get to keep the premium for the put that I sold.
Will this be on Youtube later? Yes.
Could this be a put calendar? Like, suppose it could be a put diagonal when I put it on.
Can you analyze your position? Sure put it in the analyze tab. Yeah, you can see that the risk is to the upside, here.
Will I take the stock if it’s in the money? Yes, I will take the stock. I won’t come in until monday. So on friday, I will either own the stock or I won’t.
Okay, so that looks like all the questions that I have for now. Oh wait, here’s another one.
At what level will you remove the hedge? I’ll remove the hedge when I get called out of the position. In other words, when I take the stock and then I get called away that’s when I close everything down and start over.
Okay, well this has been an interesting experience. We will come back here on Monday. Let’s see here. And to follow my Safe Wheel real time every monday at 7:15 a.m..
Now, one thing I wanted to talk about is I recently found a trade I call a Hedge Strangle that showed some promise if placed around earnings. And after studying the trade structure; and creating rules; and back-testing; and then evaluating; and tweaking; and creating rules again, doing it multiple times; and then back-testing it over and over again after changing the rules.
My results show that I found an edge and I’m going to trade this system with a $5,000 account and share my trades and my P&L. And my goal is to trade one trade a week and I’m looking for a 5% to 10% gain per trade. And there are no guarantees, of course, but I believe I can win three out of four trades. And I’m willing to put my own money on the line and I’m offering to share these trades through my new service called The Earnings Edge Alerts. And it’s offered at $259 a month. And I’m planning on sending my next alert out today sometime. And if you’re interested I left a link in the description below.
Okay guys last question here, how often will I check the trade? I’ll check it every Monday, once a week.
All right, we’re going to shut it down here. I look forward to seeing you guys on the next one, next Monday.