The Wheel Strategy: What To Do When You Get Assigned?

The Wheel Strategy: What To Do When You Get Assigned?
To get the transcript and MP3, go to: https://www.rockwelltrading.com/coffee-with-markus/assigned-with-a-wheel-trade/

Intro: 0:00
What To Do When You Get Assigned: 0:49

What do you do when you get assigned when the markets are crashing? Well today the markets are plummeting down over 3%.

Let's use my TQQQ trade as an example. I'm trading a little light right now due to the elections coming up, and I only have 3 open trades at the moment and the open P&L on my TQQQ trade is minus $2,667.

Does this mean I have a huge loss here? No. Here's how I'm managing this trade step by step:

First, on September 3rd, 2020 I sold the 150 PUT for $0.66. One day later, TQQQ tanked and I was assigned shares. I made $66 as the PUT seller (or writer), making my cost basis: $150-$0.66= $149.34

After I was assigned, I sold the 150 CALL for $2.10 and bought it back for $0.37 = $173. Now, this once again brings my cost basis down to$147.61

Next I sold another 150 CALL for $0.45 and bought it back for $0.05, once again lowering our cost bases down to $147.21

The next thing I did was sell two of the 100 PUTS, for $1.14 that I bought back for $0.05 bringing my cost basis down to $146.13

After I sold those two PUTS, I sold another 100 PUT for $2.40 and bought it back for $0.24, bringing our cost basis down yet again to $143.97

Now I sold the 150 CALL for $1.57 and bought it back for $0.15, taking my new cost basis to: $142.55

If you can believe it, I wasn’t actually done selling premium there but I don’t want to bore you. So as of now, I have realized $1,748 which currently makes me cost basis $132.52.

As soon as TQQQ returns to $132.52, my shares are now at breakeven. But if TQQQ keeps moving lower, I will just continue to sell premium, continuing to lower the cost basis. So yes, if I were to close my TQQQ shares today, it would be the WORST day to do this on a day like today (which saw indices down more than 3%).

As you can see, being assigned is just part of trading “The Wheel.” So even if the markets get banged up, you can sell premium against your position to lower your cost basis.

I hope this helps!

Recommended playlist:
The Wheel Options Playlist
https://www.youtube.com/playlist?list=PLBa3sAx-Io2nosgosERUhIZwzvIgD-3Vq
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Видео The Wheel Strategy: What To Do When You Get Assigned? канала Markus Heitkoetter