How I Choose Stocks for the Wheel Strategy | Selling Puts and Calls for Monthly Income!

hello and welcome to trading five talents in today's video we're going to talk about how i choose stocks for the wheel strategy but before we begin i just want to say i'm not a financial advisor and this is not financial advice this content is for educational and entertainment purposes only any trades i mentioned are not trade recommendations but either an example trade or a pass trade that i've made so please don't enter into any trades that you may see here now let's get into the video so how do i choose stocks for the wheel strategy i get that question quite a bit and all of the stuff that you're going to see here in this video is simply my personal opinion there are several ways to choose stocks for any type of strategy whether it's random or a very specific screening tool but this is just my personal opinion this is what i found works for me and they're basically three criteria that i look for first of all i have to like the stock that's one of the basic rules for the wheel strategy is don't do it on stocks that you don't like but you should trade the wheel strategy on stocks that you don't mind holding so you have to like the stock if i like the stock that probably means i like the sector that that stock is in for example i'm very bullish on ev which is the electric vehicle sector so stocks in that particular sector i would be bullish on now some may perform stronger than others some may have greater volatility but i have to like the sector and then i choose a stock within that sector that i think is one of the stronger performers i do like to avoid stocks that only have monthly expirations i've traded stocks with only monthly expirations and if you get stuck with them then you can only sell covered calls that are expire every month so they don't move too fast and you just are left holding them for quite a while at least in my experience so now i'm trying to avoid those stocks so i'm looking for stocks with weekly expiration dates um the second criteria is i have to like the premiums obviously the wheel strategy is an option selling strategy so if you have very low premiums then those particular stocks are not going to be very attractive if their options aren't going to be giving me the profit that i'm looking for so i have to like the stock and i have to like the premium so what i'm looking for is approximately a two percent rate of return for cash secured puts if you want more information about the wheel strategy there's a link down in the description if you want more information about cash secured puts or the csps there's a link also down in the description as well as covered calls ccs there is a link in the description about each of these types of options trades and how i set them up for the wheel strategy so check those out if you want more information but liking the premiums again about two percent rate of return for cash secured puts and that's again per trade and also before i sell a cash secured put what i sometimes do is i i envision what happens if i get assigned this stock at this strike price i look on the call side for let's say a week out what are the strikes at around you know whatever that cost basis is or or whatever the current share price is if it has good premiums on the put side um it's probably gonna have good premiums on the call side but i just like to make sure to see if i do get stuck with this stock um am i gonna like selling covered calls on this stock as well so i'm looking at both sides to sort of looking ahead in terms of premium the third criteria is i have to like the conditions regarding the stock and or the options so that means i avoid earnings or other binary events i've been burned a few times on different binary events such as earnings or clinical results from a pharmaceutical company some have gone in my favor some haven't but it's just too much of a risk and so i'm trying to avoid those as much as possible because that really many times just adds a loss in my trade log and i don't want to have that if i can avoid it and there are definitely ways to avoid it i just don't trade those particular stocks and then also if possible i like to sell cash secured puts on red days that is when that particular stock is down and the reason why is because that means i can sell a put at a lower strike price because everything is going down or at least that stock is going down so i can start selling puts lower and now when that trend reverses then my put is even further out of the money and on the call side i like to sell covered calls on green days if possible now those don't always happen but if they do then that's great i do try to look for those opportunities if they're available so if i have a choice among a few stocks of which ones i want to start trading the wheel on um and one of them is red and the other are green then i'll probably choose the red one and then sell a put on that okay so that was three criteria that i like to use and so here are two ideas or two sources that i use to find stocks that i want to trade so the first is the 100 most popular list i use robinhood and so they have a list called the 100 most popular list there's a lot of interest in these particular stocks on that broker and so if there's a lot of interest that means usually there's going to be some volatility that's good so let me show you what this list looks like over in robin hood okay so here we are in robin hood i just clicked on the 100 most popular list and you can see all these stocks are here so you can sort them as as you wish you can either by name by price by symbol what i usually do is i do it by price and the reason i do it by price is because i generally start on the put side of the wheel strategy therefore selling cash secured puts you have to have the cash in your account in order to start that trade now if i only have let's say a thousand dollars that i can trade with then i need to sell options on stocks that are trading around 10 so i'll sort it by price and then i'll just scroll down here to where it's around ten dollars starting right about here nrz and down is probably the stocks that i'll be able to trade and that's how i look for them okay all right the second source that i use sometimes is bartchart.com and the reason i use barchart is because it has a list here that is called the highest iv options list which is the highest implied volatility so these are the options that have you know the highest implied volatility which means they their premiums are very inflated for whatever reason with each of these lists actually i have to mention a word of caution is that these are just starting ideas it doesn't mean that every single stock on these lists are great candidates for trading the wheel this is just where i start and remember those three criteria i have to like the stock itself i have to like the sector i have to like the conditions um i have to like the premium so just because there are great premiums doesn't always mean that it's going to be a great candidate for the wheel strategy i've tried chasing premiums and i've got burned a lot of times doing that and stuck with things that i don't want to be stuck with i've also liked a lot of stocks but they just don't have the premiums so i don't trade those so it's got to really have all of these criteria but to get ideas this is where i go the 100 most popular list and bar chart and looking at the highest iv options list so let me show you what that looks like all right so here we are at bar chart and this is i mean you can sign up for this and you can you know get the premier version and pay for it but i just use the free website so i just go over to options and then look for highest implied volatility and click on that all right so here we are at the highest iv options list and again i like to sort by price so i'll just click on price and when you sort by price this is the share price of the particular underlying asset so it's automatically going to group by symbol as well so you can see amc is all right here and this is what i like to use in this particular site is i don't just look at what options i can sell puts on based on the price i also like to look at the call to put ratio not so much the actual metric but just glancing at what people are trading or how people are trading with these uh particular options so for example let's look at um i'm just trying to find one that's gotten many of them so let's say right here hood this is actually robin hood and you can see there are calls that people are trading there's puts people are trading puts puts if i'm selling a put that means i have a neutral to bullish outlook i want the stock to go up but if there's a lot of puts people think that this might actually decrease then i don't want to enter that trade because there's a lot of people thinking that it's going to decrease so i would try to avoid that over here for example amc notice how many different strike prices people are trading right now these are all calls so there's a lot of people believing that amc is going to increase that's why they're trading these calls so if i'm going to be starting the wheel on this this would probably be a candidate because there is some type of bullish sentiment to it and selling cash secured puts is a bullish strategy all right down here sprt you can see all of these different strikes there's quite a few of them actually but they're all spread out so calls and puts and calls and puts and calls and puts so it's maybe 50 50 you don't know which way it's going to go so this might not be a good candidate so just because it's on this list does it mean it's a stock that you want to trade also just because it has a whole bunch of you know calls or puts or whatever direction you're looking for doesn't mean it's going to be a good trade you also have to look at do you like the stock does it have weekly options does it have good premiums are there any earnings coming up you have to take into a consideration all of these different factors and not just trade something just because it's on a particular list so we looked at the three criteria um two ideas and then what i do is i just have one list so all my tickers go into a watch list on robinhood so when i'm ready to trade i can just look at this list and now i can look is it a red day is it a green day they have any earnings coming up is it at the price that i need it to be because that's how much available cash i have i put everything into one list and so this watch list is created in robinhood and many times when i trade the wheel i'm reusing the same stocks so i save these stocks that i have traded before into this watch list then i sort that list by price then i can edit that list as needed for example if stocks uh the stock for some reason has just lost all its volatility it no longer has good premiums i'll just take it off the list or if the stock gets you know too cheap and i don't want it anymore i take it off the list there could be a number of reasons why you would take um one of these stocks off your list but i believe it's a really good idea to have everything in one place and many times you'll find as you trade the wheel that you're trading the same stocks over and over right so let me show you in robin hood what this list would look like okay so here we are in robin hood if you want to make a new watch list just click on the plus icon on the same thing and on your mobile you can just click on add a list type in the list name and then create it and then you can now so for example my watch list you can edit your list as needed so here's my list and i sort them by price once again and it tells you how many shares you own of each of these on your list if you don't want it on your list you can just tap or click this x you swipe left i believe on mobile to get to get it out of your list but for example if you are wanting to add something to your list so let's say i'm at the 100 most popular and let's say i wanted to add tesla to my list you just click on the plus icon on mobile what you would do you would tap on whatever stock that you were interested in and then in the upper right corner there's a little check icon that you can add and you can save it to whatever list that you want you could have multiple lists as well for example lists that you want to trade the wheel on or list that you are interested in just the stock itself um but what i would do is i would create a list that you have for all of your stocks and that way you can go back and reference them also look at the 100 most popular look at bar chart and then edit your list as needed to suit your trading style so if you have any questions about this topic or selling options in general just leave a comment down below and i'll answer it as quickly as possible in the meantime if you want to learn more about the wheel strategy and how i use it for lifestyle trading click on the subscribe button and turn on the notifications so you can catch all the updates until next time trade wisely and take care

Channel: Trading 5 Talents

Views: 498

Rating: 5 out of 5

Keywords: options trading, selling options, wheel strategy, make money, how to make money, how to generate money, passive income, how to make passive income, how to generate passive income, generate income, how to generate income, cash secured puts, covered calls, triple income strategy, selling puts, selling calls, investing, trading

Id: 9A9FM7zqHZ0

Length: 13min 25sec (805 seconds)

Published: Wed Sep 15 2021