Trading Blog

I’m Starting Options Trading

LIM WEI XIANG

Jan 5, 2024 — 3 min read

Venturing into another world of investing!

TL;DR

Starting a new option trading account with Webull.
I am starting capital of $10,000.
Wheel Option Strategy only.
Stock: Palantir Technologies Inc (PLTR)

Disclaimer: I am not a financial advisor. The content for this article is purely for educational/research purposes only and is merely based on my personal opinions.

Please note: There will be affiliate links in this article. But it will only benefit both of us. If you do not wish to participate under my affiliate links, please feel free to Google them separately. Cheers!

The Why

I’m constantly seeking new ventures to transition away from my full-time career and create the lifestyle I’ve always dreamed of. After exploring forex trading, I was introduced to options trading, but initially lacked the extra capital to pursue it, believing it might yield lower returns than forex. Luckily, I managed to reorganize my finances, freeing up funds specifically for options trading.

My primary aim in options trading is to minimize risk while generating a consistent income. Through thorough research, I discovered that the Wheel option strategy offers the lowest risk compared to other strategies. This method allows me to generate weekly or monthly income by selling put and covered call options on specific company shares I intend to own.

The Details

Platform: Webull (link)

Starting Capital: $10,000

Trading Strategy: Wheel Option Strategy

Companies to run the wheel options strategy: Palantir Technologies Inc (PLTR) and Advanced Micro Devices (AMD)

The Gameplan

Splitting my capital in half ($5000), I will take advantage of the time decay function and sell a cash-secure put every Friday until I am assigned. There will be 3 scenarios.

Cash Secure Put expire worthless — If the price on Friday closes above my strike price, I will collect the premiums. Sweet Sweet income.
Cash Secure Put Assigned — If the price on Friday closes below my strike price, I will still collect the premiums but 100 shares of the company will be assigned to me, which means I will own 100 shares.
Now that I own 100 shares, I will start selling Covered Call options at the same strike price to start collecting another premium. On top of that, I will continue selling cash-secure put options and continue collecting more premiums.

The Downside

All types of trading involve inherent risks, including the wheel option strategy. In my view, the only risk of monetary loss occurs when I’m assigned the 100 shares after my cash-secured put option is assigned. For instance, if I sold a $20 strike price on the first week when the stock was at $25, but it dropped below $20 to $15 by the end of the second week, I would be obligated to purchase 100 shares at $20.

This scenario results in an unrealized profit and loss of -$500, calculated as the current price of $15 minus the $20 strike price. It’s important to note that this is an unrealized loss until I decide to sell my 100 shares at $15, at which point the full $500 loss would be realized.

My strategy in such a situation is to hold the shares indefinitely and initiate the sale of covered call options with a strike price of $20 or higher. This allows me to continue generating income from the covered call options until the share price rebounds to $20 or above.

I hope from the above example you can see there are more benefits to trading the options strategy than forex trading or just pure stocks trading.

Endnote

I began implementing the wheel strategy in my trading journey just a month ago and have successfully earned around $100 in premiums from selling cash-secured puts. I plan to include updates on my option trading activities in my monthly review blog post, sharing my progress and experiences with everyone. I invite you all to join me on this financial journey towards achieving true financial freedom.