The Wheel Strategy: Turning Assignment Into More Income

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Tobias discussed The Wheel Strategy: Turning Assignment Into More Income. Here’s an excerpt from the episode:

And so we ended up buying 100 shares at 250. But with the premium that we collected on the put, it cuts the effective cost basis to 246.92. So that’s the first and second part of the wheel. So now we go to number three.

Got ahead of myself there. Okay. So this is a trade that was issued to subscribers today on June 19th, and it is for the June 22nd trading day.

We’re going to sell the 260 call against the 100 shares that have been put. We’re targeting a premium collection of $6.75 a share, which is kind of the middle of the trading range for this option. There’s 39 days to expiration, expires July 31st.

So here’s where the trade would stand, assuming we get filled at that price. So two option trades in this wheel, the assigned 250 put where we collected 308, and this new 260 call would be 675. So that’s a total premium collection of $9.83. And that would lower the cost basis to 240.17. And currently the shares are at 244. So it’s really just the start of the game. And if that option expires worthless, the 260 expires worthless in 31 days, we can still another call, or we could just own the stock outright. But you’re not just taking a loss.

It’s not just a binary A or B outcome. It’s a continued process with the wheel, and we feel really good about it. So does that make sense, Toby?

[Tobias] 100%. You find the stock that you like and you structure around it so that you get the price that you want. You’re always lowering your price if it’s going against you until you make a decision you wanted at the price that you get it, or you’re happy with the income that you’ve generated and you move on. A GFT Review can also offer additional insight into trading platforms and strategies as you explore different approaches.

Great outcomes.