All right, so how exactly do you place a trade for The Wheel? Well if you have been following me for a while, then you know that I love trading two strategies.
The first strategy I trade with is The PowerX strategy and it’s my bread and butter strategy.
The second strategy I love trading is The Wheel strategy and this strategy has a very high winning percentage. In fact, I’ve been trading it publicly live on my YouTube channel over the past few months, and thus far I have only one realized loss over 4 months of trading it.
Having a trading strategy is key, but how do you actually place a trade? In this article, I will show what steps you need to take, from what type of account you need, to how exactly to place the trade.
I’ll show you these steps using two popular brokers, first on tastyworks, and then on Interactive Brokers because I know that many international traders use this platform.
Getting The Right Trading Permissions
Firstly, you can trade The Wheel in any account you want, even in a retirement account. You just need to make sure you have the right options for trading permissions.
When it comes to options trading there are four levels. To use as an example, I actually have here an account opening form right here from TD Ameritrade.
So as you can see, they ask you, as every broker does,
“What type of activity do you plan to conduct in your options account?”
It doesn’t matter whether it is a cash account, a margin account, or a retirement account, all you need for trading The Wheel strategy is the lowest permission possible which is Tier 1.
With Tier 1, you can write and sell covered calls, as well as writing and selling cash-secured puts. This is exactly what we are doing with The Wheel strategy.
By the way, if you are unsure about the difference between cash-secured puts and naked puts, I wrote an article for it and you can read it HERE.
I highly recommend you read this article if needed because it is important that you know the difference. Every broker acknowledges this difference, and in order to write uncovered options or naked options, you would need Tier 3 permission and a margin account.
So this is step number one because if you don’t have these permissions, there’s not a whole lot that you can do. Contact your broker and make sure that you have Tier 1 options permissions, which again, are writing covered calls and cash-secured puts.
If you have a higher Tier, like Tier 2 or 3, that’s okay, because Tier 1 is included in the higher Tiers.
The 4 Things You Need To Know
Before placing a trade, there are the first four things that you need to know:
- What type of option are you trading? Are you trading a call or a put?
- You need to know what is the expiration of the option.
- What is the strike price?
- What’s the minimum premium that we want to get in this trade when trading The Wheel strategy?
By the way, if you don’t know about The Wheel strategy yet, you can check out a playlist with videos explaining it in detail HERE.
For those who may not be aware, when I take a trade I send out an alert notifying those who opt-in to our Power Income Alerts. I recently sent an alert out for a trade with WYNN that I recently took, and here is what these alerts look like:
As you can see with this alert, the idea is we believe that WYNN will stay above 70 by October 30th, but if it is less than $70, we will be assigned shares, then sell calls against the position.
As you can see, the alert shows the exact four things that you need to know in order to place the trade. You can see the strike price, the expiration, and the credit that we want to achieve here.
With this information from this alert, I’m now going to show you how to enter this trade in tastyworks, and then I want to show you how exactly you do this on Interactive Brokers as well.
How To Place A Wheel Trade In Tastyworks
Once you bring up the tastyworks platform, the first thing that you need to do is enter the symbol.
Now, the second thing is, as soon as we bring it up, you click on the “TRADE” on the left-hand side. After you click the “TRADE” tab, you have to select the expiration from the list that populates.
Going back to the alert you will see that the expiration is October 30th so this is the expiration we are selecting here.
Now you see here all the calls on the left-hand side and all the puts on the right-hand side.
You just click on the bid price, and after clicking, it says “S1.” So this means now that you are selling one contract. Now, depending on your account size, you might want to sell more than one contract.
This is why the alert will tell you the buying power that you need to trade one option if you want to trade it cash secured, which I highly recommend you do. Cash secured would be $7,000 for each option that you want to trade.
So for me personally, in this account, I wanted to trade three options so I can adjust the quantity until I see three options. And it is a -3 because I’m SELLING the put.
That is part one of the Wheel strategy, again if you would like to learn more about the strategy, you can check out a playlist with videos explaining it in detail HERE.
So the next thing is that you need to specify the minimum amount of premium that you want to achieve. In the alert, I specified that you should receive at least $0.50 credit.
Now as you can see, the bid/ask right now is between $0.80 for the bid and $0.84 for the ask, and it makes sense to go with the mid-price which most brokers suggest.
Now click on “REVIEW AND SEND,” and then you have the opportunity to quickly reviewing your order.
You see, we have three WYNN options here that we are selling, with an expiration of October 30th, and a strike price of 70. You’ll see a P which stands for “put,” and STO means “sell to open.”
As you can see, I am using a limit order to sell it at $0.82. Now $0.82 is above the $0.50 credit that I suggested that you get at a minimum in the alert, so if you are able to get more than the minimum, good, do it.
There are estimated commissions and fees, and then you just have to hit “SEND ORDER” and the order gets placed.
You now just have to wait to get filled. If you’re not getting filled right away, you can adjust your bid and ask. So instead of going for $0.82 as I’m doing here, you can then try lowering your bid to see if you get filled.
As you can see, it’s very simple. Next, I want to show you also exactly how to do this on Interactive Brokers, and it’s just as easy.
How To Place A Wheel Trade In Interactive Brokers
All right, so let’s move over to the Interactive Brokers platform. Now I have accounts with multiple brokers, and we will be using the information from the same alert we used when placing the tastyworks trade.
I have a total of nine accounts. So this here is one of the accounts that I have with Interactive Brokers, there’s $44,000 in this.
This platform looks slightly different as you can see, but the functionality is always relatively the same.
There will be a place where you can enter the symbol, so we are typing in WYNN as the symbol in the upper left. As soon as we hit Enter, it will ask us if we want to trade stocks, or do we want to trade options, so of course, we pick “options.” This will bring up the options chain.
An alternative way to bring up the options chain is to click “New Window” above the field where you input the stock ticker and click “OptionTrader” to bring up the options chain.
As you can see, looks almost similar to what we saw on tastyworks. So here again, we enter WYNN and now we need to pick the expiration. The expiration going back to the alert is October 30th and a strike price of 70.
Just like we did in tastyworks, after selecting the strike price of 70, we click on the bid. Once we click on the bid, it will bring up the order at the top.
It asks for a limit order, and we can also adjust the number of contracts. So instead of trading one contract, we can trade three contracts. We can also adjust the limit order to 82, as we had with tastyworks. When we’re done, all we need to do right now is hit the T for Transmit.
As you can see, there are differences between these packages. I personally use Interactive Brokers a lot, and it is very popular with international traders. I also use the tastyworks platform and find it a little bit easier to use.
Now you know how to place a trade according to the Wheel, using tastyworks and Interactive Brokers. Other brokers, other than these two, will be very, very similar.
After reading this article, you now know what type of account you need for trading The Wheel Strategy, and you can use a cash, retirement, or margin account.
It doesn’t matter as long as you have Tier 1 options permissions, meaning you can write/sell covered calls, and cash-secured puts.
Within the platform, all you need to do is input whether you’re trading a call or put, the expiration, strike price, and what’s the minimum premium that you want to collect. It really is that easy.
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