The Options Wheel Strategy: Generate Income With Puts and Covered Calls

During their recent episode of the Acquirers Podcast, Travis and Carlisle discussed The Options Wheel Strategy: Generate Income With Puts and Covered Calls. Here’s an excerpt from the episode:

You keep reloading the gun. So it’s a total game changer. So what I also love is what we call the wheel.

Okay. So there’s other videos where you could find stuff about this, but this is a no brainer strategy when you tie it in with value investing. So basically step one, we’re going to sell a cash secured put.

Once again, company we want to own at a price that we want to own it at. Heads or tails, either the option expires, you make your return. We almost always target double digit annualised returns.

That’s normally the return hurdle. There’s some small examples for really safe, what we believe to be safe investments, but usually we’re targeting double digits. Expires, you make that double digit return.

If you’re assigned, then you end up owning the stock at cheaper prices and you’ve got all the upside or downside on the stock plus the dividend. So now that you own it. Okay.

So let’s say in the wheel example, you own it. Now, what are we going to do? We’re going to sell a covered call.

So you’re getting the dividend. You collected that premium already, which reduced your cost basis on the stock. Now we’re selling covered calls above your cost basis.

So we’re generating additional income. And once again, there’s two things that can happen. Either your stock expires above the strike price and you get called away, locking in a great profit, or you end up selling another call and you can keep doing the wheel.

So it’s a fabulous cycle. And the thing is, Toby, as you know, I mean, as someone that’s been in this business for a long time and same here, it’s hard for do-it-yourself investors that are focused on their job, their employment, their family. How do you have time to do all this, right?

So it’s not easy. And then it’s like, okay, well, now I’m exercised, which options do I sell? Has the intrinsic value changed in that time?

So the cool thing about the value options letter is that it keeps track of that. So it changes the intrinsic value estimates of stock prices, the target prices of it. It makes specific research-orientated suggestions on which strikes to do, and it follows the trade.

It tracks them, making it so easy where the subscriber just can log into their brokerage account and place the trades themselves. Or if they have a broker or advisor, they can place it themselves too. Once again, not acting as an advisor in this capacity.

So pretty simple there.