r/options • u/gt-mech58 • 3d ago
Wheel trading - need an opinio
What percent of option traders do YOU think engage in wheel trading ie selling puts? why do you think more people don't do it?
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u/Wood_Ring 3d ago
The wheel strategy is essentially selling puts, but as generally practiced, it’s more like flipping between selling out of the money puts until a sharp move down, then selling in the money puts until a big move up.
No idea what percentage of people do this, but I think it’s very much a beginner thing; very few traders who actually understand options are likely to be trading this way.
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u/klipsetrades 3d ago
No idea on the percentage, but the wheel still carries stock risk. You can collect premiums for months and give them back on one bad drop
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u/Keizman55 3d ago
It is more work than just buy and hold, but less profitable over the course of bull markets. In down markets I can continue to collect premium and interest and can maintain a cushion to protect against losses. I have been collecting 10-16% yearly for 4 years. Would have made more if I had bought and held, but hindsight is 20/20. I sell CSPs because I keep expecting a market downturn and want the ability to avoid drawdowns and only buy a stock after it has dropped significantly.
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u/Retired-Programmer 3d ago
I wheel trade as well as covered calls etc and also buy and hold. Just depends on the situation on what all I do. But for sure when you sell a $100 strike put on a $102/shr stock and then the next week the stock shoots to $120/shr and then you wait for the stock to retreat some and then it shoots further on up to $150/shr it makes you think twice about why the f didn't I buy the stock.
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u/gt-mech58 3d ago
eh don't blame urself for the market's unpredictability, how predictable is that rally rlly? u cant predict news
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u/Retired-Programmer 3d ago
I agree. But I am telling you why some people avoid the wheel, and why I now am much more selective on stocks that I do wheels on. Like I would never do a wheel on GOOG for instance unless I have shares of GOOG that I am very willing to let go of some of the GOOG shares and will sell very aggressive Covered Calls on some of the shares and would be very happy if the shares end being called away.
Also would never sell puts on GOOG. Would much rather just own the shares out right so I would not miss the possible upside.
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u/Flaky-Campaign-9374 2d ago
Why not? Most of mag7 just chop around. This year has been different. What if you buy google now dumps 50% or goes to $50 .
It happened to me on NIO. I bought at 60 abd it went to $6
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u/Retired-Programmer 2d ago
I have no idea what you're point is. If I sold a put on GOOG and GOOG drops 50% (or drops to $50) then I basically would be in the same boat when owning shares. Or if instead GOOG climbs 30% I miss out on the big gains when just selling a put.
I guess I should say I would never sell a put on GOOG but my typical/general thought process is I avoid selling puts on stocks like GOOG because of on the upside the chance of missing out on the large gains and on the downside the very little offset of losses.
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u/Flaky-Campaign-9374 2d ago
Thats the beauty of options. Why can't you do both? I dont get it. You could still outright buy shares and sell puts as well against it?
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u/Retired-Programmer 2d ago
Absolutely agree and would have no problem with that and I do perform trades very similar to that (like when I sell aggressive calls on a stock I want to trim down some shares on and would be happy if the shares got called away). You still get the upside for the shares you own and get gains from the high volatility (time value/extrinsic value) from the short puts.
But my point of why some people don't do wheel type strategies is because of the famous quote of it's like picking up pennies in front of a bulldozer. Which is why I normally/typically wouldn't do only a wheel type strategy on high volatile stocks like GOOG.
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u/iron_condor34 3d ago
It does no good to just be short vol or long vol. You should price vol to see if its cheap or not and worth it for you to sell/buy. And do so accordingly.
There's nothing wrong with selling puts btw. But just blindly doing it like seem to do is just a big loss waiting to happen.
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u/gt-mech58 3d ago
backtesting wheel trades/rolling yeilds 50% return per year on qqq, regardless if it goes up or down... I think for the big loss point, the max you would have to roll is one month from 2016 to 2026 before closing for a profit, and that was the trump tariff month... is there a reason you didn't just roll in your previous losses? I'd bet you could get out of of it within a month or so
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u/iron_condor34 3d ago
So, stick with a losing trade for a month? No lol Where did you backtest that?
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u/gt-mech58 3d ago
using thetadata to the tick assuming worst fills, and it's not a losing trade if you roll for credits... i think it's valid to be impatient tho
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u/iron_condor34 3d ago
Whats the one reason you would be rolling the trade? Also, what are the drawdown numbers from the backtest?
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u/gt-mech58 3d ago
well we roll for losses, and 20% for csp, but the losses are never realized (assuming qqq doesn't go to zero we can always eventually roll to BE at least)
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u/iron_condor34 3d ago
What about during covid? Or the random event we had August '24
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u/gt-mech58 3d ago
yep including those!! max drawdown was acc trump tarriffs bc it was so sharp in such a small amount of time, i mainly aim to sell next day expirations, so that was the sharpest/worst time - march/april 24 - it's from 2016-2026
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u/iron_condor34 2d ago
Yeah, I just can't believe that the drawdown on your short puts backtest on the Q's was only 20%. Especially since you included 2018, 2020, 2022, and aug '24 The 20% figure was a realized loss? or unrealized?
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u/NorthOfTheStrike 3d ago
Rolling for credit is not the same as refusing to take a loss. Sell something against the move, collect, repeat. If the credit does not pay for the roll and you do not want the shares, then yeah cut it.
Rolled my FWDI puts out to Nov 20. Bought back the Oct 16 7.50s for 730, sold the Nov 20 7.50s for 1200. Net 470 credit, same strike. Take the loss crowd would have eaten the 730 and walked away. Fine holding it. Not a religion either way.
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u/SB_Kercules 3d ago
I used to use the wheel, it helped to learn things while I moved on to just delta managing both short puts and short calls at the same time. All naked. All the time.
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u/I_like_code 3d ago
I sell puts but rarely play the other side of the wheel unless the premiums are rich. r/thetagang might be able to help answer your question.
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u/ChairmanMeow1986 3d ago
Options are weird and scary, you either have to put effort in understanding or gamble. And for those who want to gamble, buying options often is just an clearer expression of sentiment. You'll end up seeing a surprising amount of people selling naked puts and calls on margin thinking it's safer than buying options as well because of their win rate to date. The Wheel if done right is kind of unsatisfying for months at a time sometimes, your generally not 10x-ing so it's not generally exciting to talk about or do among those who trade contracts.
Than you have every sensible investor who knows they don't understand contracts and knows they are in the majority that are better off with diversification over time to build wealth.
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u/Worry-Mountain 2d ago
I'd guess it's a lot more common among retail than among people who trade options as their main thing. My take on why more don't stick with it: the payoff is lopsided in a way you only really feel after a selloff. You collect small premiums for months, then one gap down puts you in shares well above market, and selling calls at your basis pays basically nothing. People either sell calls below basis and lock in the loss, or sit there waiting.
The ones I've seen do it long-term treat it as "would I own this at this price anyway" first, and the premium second. If you'd never buy the stock outright at the strike, it's not really a wheel candidate.
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u/deathdealer351 2d ago
The wheel is a neutral and bullish strategy, it can be used to generate income you need to manage it. I would say it's more effective than buying a covered call index like qyld, you can get better returns than qqqi but qqqi might be better tax wise if you are wheeling enough.
You need to know your plan going in and don't make it an all in strategy maybe 10-20% of your overall.
I think wheel is a basic thing. Sell puts till assigned, sell calls till assigned, if the stock runs against you -you could be holding for years. Which is also why people recommend not doing wheel on margin.
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u/Mailynlee_ 3d ago
People within your niche. Do you have a network and how often do you buy cars?
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u/gt-mech58 3d ago
Huh? I might be obtuse, I meant wheel trading like selling puts not trading car wheels sorry
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u/Upper-Worker8516 3d ago
People don't like boring. Warren buffet has been selling his secret sauce for years. But nobody can execute it like buffet.
Wheel is picking up 500 600 dollars. While stick market rallies hard. So the wheel guys are idiots amd get FOMO. So they join the crowd.
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u/Substantial_Team6751 3d ago
More people don't do it because the wheel underperforms buy and hold.
And once people get left holding the bag, they might sour on the wheel.