Summary of "This will CHANGE how you trade the Wheel Strategy (Options Strategy For Beginners)"

Summary of Financial Strategies, Market Analyses, and Business Trends

This video presents an alternative method to trade the Wheel Strategy in options trading, designed to improve psychological comfort and profitability during volatile or crashing markets. The traditional Wheel Strategy involves selling cash-secured puts and covered calls, but this alternative incorporates put and call debit spreads to better manage risk and enhance returns.

Main Financial Strategies and Methodology

1. Traditional Wheel Strategy Recap

Start by selling a cash-secured put at a strike price where you don’t mind getting assigned.
If assigned, sell a covered call on the shares you own.
Profit primarily comes from premiums collected.
Risk: Large market drops can cause panic as puts go deep in the money.

2. Alternative Wheel Strategy Using Ratio Spreads

Instead of only selling a cash-secured put, add a put debit spread (a long put and a short put at different strikes).
This creates a put ratio spread structure but with legs managed separately for flexibility.
The short put (cash-secured put) is typically at the desired assignment strike (e.g., $100).
The put debit spread is placed slightly above this strike (e.g., $101) to hedge downside risk.

Benefits:

You receive a net credit (premium from cash-secured put minus cost of put debit spread).
If the market crashes below your cash-secured put, the put debit spread gains value, offsetting losses and providing profit.
This reduces psychological stress during market downturns.
You can close the put debit spread when it reaches 70-90% of max profit, locking in gains.
Left with the cash-secured put to manage as usual (hold to expiration, assignment, or roll down).

3. Managing the Call Side with Call Ratio Spreads

Once assigned shares, instead of just selling a covered call, sell a call ratio spread.
This involves selling a covered call and buying a call debit spread above it.
This structure profits if the stock rallies beyond the covered call strike.
Close the call debit spread early (70-90% profit) to avoid assignment risk on multiple short calls.
Manage the remaining covered call by letting it expire, getting assigned, or rolling it out.

Step-by-Step Guide to Constructing and Managing the Alternative Wheel Strategy

Choose strike prices:
- cash-secured put strike where assignment is acceptable.
- put debit spread strikes slightly above the cash-secured put strike.
Sell the cash-secured put to receive premium.
Use part of that premium to buy the put debit spread (net credit overall).
Monitor the put debit spread:
- Close when it reaches 70-90% of max profit.
- This locks in gains and reduces risk of assignment on multiple short puts.
Manage the remaining cash-secured put:
- Hold to expiration and get assigned.
- Or roll down to a lower strike with a new expiration, aiming for net credit.
If assigned shares:
- Sell a call ratio spread (covered call + call debit spread).
- Use covered call premium to finance the call debit spread.
- Close the call debit spread early for profit.
- Manage remaining covered call similarly (expire, assignment, or roll).

Additional Insights

DTE (Days to Expiration) Selection:
- Wheel Strategy is flexible with DTE; not as critical as in pure spread trading.
- Shorter DTE means less premium but quicker cycles.
- Longer DTE (30-45 days) offers better premium and balance.
Earnings Considerations:
- It’s acceptable to trade the Wheel Strategy through earnings.
- Earnings often inflate volatility, increasing premiums.
- The put ratio spread cushions potential large downside gaps.
Stock Selection:
- Use fundamentally strong stocks with a higher probability of long-term appreciation.
- This reduces risk of severe long-term declines.

Trade-offs Compared to Traditional Wheel Strategy

Lower premium collected upfront due to cost of debit spreads.
More complex trade construction and management.
Greater psychological comfort and potential for higher profits on large moves.
Better risk management during volatile markets.

Presenter / Source

The video is presented by Davis from OptionsWithDavis.com, who also offers additional educational resources such as the "Options Income Blueprint" and a "Short Put Rolling Masterclass."

This alternative Wheel Strategy using put and call ratio spreads enhances the traditional wheel by embedding debit spreads to profit from large market moves and reduce emotional stress, making it particularly useful during volatile or crashing markets.