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, let’s get started this morning. So yesterday when I went to place my trade, the account didn’t have enough buying power, and it had to do with the account not having margin. And it just depends on what kind of wheel strategy that you are trading. Some of them won’t require margin.
And the reason why it did require a margin is because I wanted to trade out of a position and then back into a position on the same day. So I ran into problems. I talked about the margin issue. This is what happens when I go to put margin in my account. It says “unfortunately you’re not eligible to apply for margin,” and so that’s what happened with this particular account. But yesterday I got a hold of TDAmeritrade. And I said wait a minute, I should be able to apply for margin and because this is a joint account. So they said yes you should. So I applied yesterday and hopefully it’s going to go through.
So at any rate, normally I’d be doing this on a Monday, but today’s Tuesday. Now, I’m going to go ahead. I closed out my position yesterday. See I’m up $62. I started with $5,000. And I’m going to trade Macy’s. I’m still going to stick with that stock. I don’t like anything under $20 or anything over $40. I could get… I could use a stock that’s got a lot more volatility to it and it shouldn’t be a big deal. It wouldn’t be an issue. If there was a stock with a lot less volatility, that could be an issue, because I like to get a certain amount of premium.
So let’s get started, the first thing I’m going to do is I’m going to look at the price. The price is around $26. So if I look at $26 and I multiply that out times 80%, so26 times .8, that’s around $21. So that means the $21 is a strike that I’m going to use to buy my put-hedge. I’m gonna hedge this position with three puts and I’m going to do that usually around the 150 to 200 day mark.
So I could… This is 220 versus 129. I could use either one of these so if I look at the $21 put, it’s over $2. I think that’s a little much so I’m gonna go with the put at 129 and the $21 puts. I’m gonna buy three of these. So I’ll just go ahead and put my put-hedge in right now. You see my mid price is 1.52. I want to pay as little as possible. Okay, so let’s get this filled. Good. 1.52 here. Okay, so now we have our put-hedge on. So now our position’s hedged.
Now we want to start our wheel strategy. I’m going to sell the one that expires Friday. I’m going to use the weeklies and I’m going to sell a put because that’s the beginning strategy. Now, I would like to sell it at somewhere where it’s about 1%. So if I’m at $26, I’m gonna get about $0.26. And you see I can’t get $0.26 here at the $24.50. So I’m going to go ahead and move to the $25 strike. So I’m going to sell this. I’m going to sell one and the mid price is .32. Maybe I’ll shoot for .33. Maybe I’ll get lucky or something, let’s see. Okay, I’ll work this down.
All right, so now I have my put that’s what the normal wheel is, but I’m going to do one thing extra because the fact that I have three long puts I need to protect that. And so what I’m going to do is I’m going to buy a call in the same expiration cycle here for around $0.05. Just a little call that really doesn’t cost much, but I’m going to do that because I want to protect my three my put-hedge. I mean, my hedge could lose a lot of value if Macy’s were to shoot up really high for some reason. So I want to protect that.
So, now we have our position on. Excuse me, I’ve been sick for four days. Okay, so now I have my position. I’ve got my hedge. I’ve got my income here and I’ve got my protection. There’s my income, my short put, my little bit of protection, my call, and then my protection to the downside on the put. And so what will happen is Friday I will either get exercised or I won’t and then on Monday I’ll come in and do the same thing over depending on where I am with the wheel.
Okay, so I’m willing to… Let’s take a look at the chat see if there’s any questions. If you have any questions, I’ll answer those. Here’s a question here.
From Wid3, what is the point of the cheap call if you don’t touch it until next week? What are the benefits? Okay, so that was what I was just talking about… Let’s talk about what if Macy’s just went something crazy happened and it went to like $35. Which I’ve seen happen. Maybe they get a takeover bid or something. Well, my three long puts they’re going to be, they’re going to go down significantly in value and that’s going to cost me a lot of money. So I’m just going to spend a quick little $0.05 and protect that.
Okay, here’s another question here from Anthony Dixon: you should be able to get limited margin to cover clearing transactions, I have two iras that give me limited margin for the justice scenario. Yeah, exactly the guy at TDAmeritrade; and when I went into the account when I got this error message here and the guy at TDAmeritrade told me I couldn’t do it so I’m like what; okay I guess I can’t. And then I thought about it for a while and I’m like why can’t I get margin? I should be able to get it it’s a separate account. It’s not an account in my name. It’s in my name and one other person’s name. And so when I went in and called somebody that knew what they were talking about they let me apply. So it should go through hopefully today and I’ll obviously know more at the end of the week.
Okay, next question here from Saving Harrodsburg Castle: if Macy’s goes up for the weekend, won’t you lose a lot on the three puts? Yeah, that’s possible. We could have a gap up over the weekend. I am exposed right there. I didn’t see any of the problems like that happening in back-tests but that is a possibility. There is some risk there.
Okay, well those are all the questions that I have for today and we have our position on and I’ll be back on Monday. So I look forward to seeing everyone on Monday. Wait a second one more, one more, question guys, just about to end this thing let’s see what happens.
So you only buy one call to hedge long puts? Yeah, that’s true. That’s true because those long puts aren’t going to really lose that much in value because they’re so far out in time. So the short dated stuff will go up. It has a higher delta.
Okay, I will be back on Monday.
LINKS MENTIONED:
Link to my Earnings Edge Alert Service
Link to My Safe Wheel Back Tests GO TO 6:55
