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Conservative option strategies, what did you buy or sell today?
John,

I don't follow NIO closely but if you going to play with a hot stock, It's as good as any. The EV cult is going to grow, and China seems to have chosen Nio as one that will succeed. They're going to continue to grow revenues and units for the foreseeable future as they are starting from a fairly low base. Now that I said nice things, the valuation is nutty but that doesn't matter so much given what you are doing.

I understand what "Wheel Trading" is. That's a new name for an old strategy. I suppose I do my our version of it on income stocks. A few general comments...

1. You sell a put to enter, that's great. It's the best way to enter a stock IMO. Collect those premiums until whenever as long as the stocks narrative hasn't changed.

2. Eventually get assigned. You better really like the stock or you're likely to make impulsive decisions in a rough market. It WILL happen eventually. It's the nature of selling puts and waiting for weeks or months at the whim of the market.

3. Here is the easiest way to screw this strategy up, especially in a bull market. You now need to sell a call. This one requires some deeper thinking to keep the risk reward in balance. Formal wheel trading, if there is such a thing tells you to sell a covered call the day you are assigned shares. NIO isn't KO. You just took the risk of sitting on a put for smallish money. You could have been exercised with a 50% loss in a few weeks. Not being dramatic here. That's a very real risk. So a wheel traders survives that and automatically sells a covered call that will lock in a 5% return in a stock that might run 20% in a month. You just lived that outcome and left money on the table.

You have just exposed the problem with the wheel strategy a volatile stock. I am careful with step 3 these days because I've been burned too many time. I try to forget how I got here and sell the call when it actually makes sense. If it's actually a good stock I'll get a chance when it runs up to at least somewhat overbought. If not collect the dividend a few more months. A decent dividend helps me be more patient. I do what you are doing on stocks like KO repeatedly. In my perfect world I also have some shares not obligated to a call in case it goes ballistic to the upside. It stings less. You can sell a call on the other shares that launched while you regroup selling a put on this or another stock.

The risk/reward is just out of balance for what you are doing. You don't trade NIO the same way you trade KO or T.

I have a couple rolls to share later tonight. They present a good example of the decisions you face. Sometimes you win, sometimes it's meh. You usually only lose if you make stupid decisions. Works too often for me to rule it out.
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Messages In This Thread
T puts ? - by john - 03-17-2020, 09:33 AM
RE: T puts ? - by fenders53 - 03-17-2020, 10:32 AM
RE: WEN options update - by john - 03-23-2020, 09:53 AM
RE: WEN options update - by fenders53 - 03-23-2020, 10:40 AM
RE: Conservative option strategies, what did you buy or sell today? - by fenders53 - 01-08-2021, 07:18 PM



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