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Greetings,
This is a text about the wheel options strategy and it's a second part to it that I've written. This text is meant for beginners.
Why am I writing this?
Because writing down this process helps me improve and potentially connect with like-minded individuals.
Anyone is welcome to comment, point out mistakes, and suggest improvements.
I wrote this from experience, this is not a one size fits all text and IMO that's the beauty of options trading - you just HAVE to think with your head and be flexible.
If I missed something - please let me know in comments but also keep in mind that something not mentioned here is going to be mentioned in the upcoming parts of this text since there's a 40 000 character limit on reddit.
I wanted to start this one with watchlists.
Enjoy.
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I see traders build large watchlists of like 120+ stocks that they then update monthly.
If you ask me - the greatness is in simplicity and 120 is not simple, that's more like "I don't wanna miss a good opportunity".
IMO, you are then as a trader spread out too thin, the "focus of a trader" or let's say their "decision making quality" becomes lower.
What I do for example is that I have 4 different watchlists with max 20 stocks. (Max is 25 and lowest is 9 currently)
Each of them serves a purpose:
1) Stocks of interest
2) Silent stocks
3) Current stocks
4) Stocks to buy options on
What typically happens is - a stock comes to 1, then maybe gets moved to 3.
Same as for 2, maybe gets moved into 3.
The difference between 1 and 2 is that under 1 there are stocks that are known/trending ( read "growth").
Under 2 are the beaten down ones or just in general silent (love these)
4 is the last on the list for a reason, it requires maximum conviction for a certain investment and these rarely happen.
Now, the same stock can be in multiple lists, for example 2 and 4. (Good for LEAPS)
Why this approach?
Less clutter, I as a trader can switch mentally easier on how I approach each investment.
I found this approach useful to reduce overtrading and even chasing premiums.
If somebody else uses a different approach I'd love to hear it but I hope you understand my approach.
"Cut relentlessly".
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Anyways, with a list of 120+ stocks, you can find 10+ opportunities that meet your criteria at any given moment for sure, but then you get into temptation quite easily.
I don't want to get myself into that position so I use a trick:
The last thing on my "to-do list" is to check full market (us equities, S&P 500, popular stocks, wheelers, sub-15 stocks).
These 5 are premade in a tool I use but the point I want to get across is that "whole market outlook" needs to be last order of business. I don't waste much here - up to 2 minutes.
For starters, a good research on stocks can be made by using some filters when searching on Stock Unlock (took a look, never fully used it).
Or you can even write custom prompts in perplexity for example (Tried it - got actually very good results, just pick a good ai and double check the numbers). You can later use ai to teach you what certain numbers mean if you're starting out.
The first site I mentioned considers metrics like P/E ratio, analyst target price etc.. This is useful if you're starting out but that's not how I started out personally.
I checked an option screener and saw which stocks pop up with great deals down to average ones. Then researched every one of them online until I understood them.
Yahoo finance was my best bud. I also used ai to break down everything.
When you're done with this, it's practical to have 2-5 stocks when starting out in a watchlist.
While screening bunch of stocks is time consuming, it's worth it because it dramatically increases your odds of doing that first step of the wheel right.
My advice: Find some stocks that are inevitable to succeed.
The biggest investment opportunities happen when:
\- The world NEEDS something (like copper for EVs)
\- There isn't enough of it (supply can't grow fast)
\- Everyone is scared (trade wars, recession fears)
\- The fear doesn't fix the problem (tariffs don't create copper)
There's much more but I don't wanna get too much into it.
Onto the actual options trading part..
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DTE Strategy when picking CSPs:
Weekly approach (4-11 DTE let's say)
I'll usually sell Monday and target Friday expiration (4 DTE same week)
If I hit 80% profit on Monday or Tuesday:
* Close the position immediately
* Recycle the capital into either:
* (a) a rolled CSP on the same Friday
* (b) new wheel on the same Friday
If you hit 80% profit on Wednesday or later:
* Close and reassess
* If rolling, move to the *following Friday* (not the current one—theta is too aggressive, risk isn't worth it)
This is quite active and the downside is that you're paying more commissions due to frequent closing and rolling. You need a big account to make this make any sense in doing so.
Why this is done?
When you close a position at 80% profit, you're recycling capital faster rather than waiting for that last 20% of profit.
Close at 80% *only if you've identified a better opportunity.* Otherwise, let theta work.
Use a screener to make this decision real-time, not reactive.
A screener proved to be useful for me here, you do this "tactic" mostly if you have a better use of the capital - most often in a different stock. But yeah, this again - makes sense only on bigger acc.
Also, even if the general aim is to sell puts on the up trending stocks, that doesn't mean that the stock only needs to move up for you to enter a csp.
Normalize selling a csp if the stock is falling and you actually want it at that level.!!
Selling a csp in my opinion should be about taking someone elses risk and making money of of it.
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Monthly approach (30-52 DTE)
45 DTE is the sweet spot here because you get "most time for your money".
You get lower commissions and it's mentally easier aswell. My advice is just to check any upcoming news about that stock and even what's happening out there in the world.
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My take:
If you ask me what I think about all this - **I think it can be simpler.**
If you got 80% of the profit before any expiration then check why.
Also, check how much time there is left in that trade because of theta decay.
If you got more % profit in the first few days of a trade than the average expected amount per day in a trade then you can also re-asses and start over.
From that you should get enough information and proceed with your next decisions.
Stay? Deploy capital elsewhere? Start a new wheel?
You can't predict when the stock will start going up or down, you manage your positions according to what's happening.
Want it even simpler?
**Shorter DTE on speculative plays - lets you collect IV premium.**
**Longer DTE on high-conviction plays - lets you average down and compound.**
***Just that, nothing more.***
Decide between two above and pick accordingly.
So yeah, if you're starting out just don't follow the "rules" blindly. Be agile..
Consider a good stock pick, have a small watchlist, keep it simple, stay on "low assignment side", don't chase premiums.
The rest, weekly vs. monthly, rolling vs. closing...becomes obvious when you've actually executed a few hundred trades.
Thank you for your time and I hope this text helped someone.
Sincerely,
David