How To Place A Wheel Trade

2020年12月1日

I’m Markus Heitkoetter and I’ve been an active trader for over 20 years.

I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails.

They start trading and realize it doesn’t work this way.

The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically.

Real money…real trades.

All right, so how exactly do you place a trade for The Wheel? Well if you have been following me for a while, then you know that I love trading two strategies.

The first strategy I trade with is The PowerX strategy and it’s my bread and butter strategy.
The second strategy I love trading is The Wheel strategy and this strategy has a very high winning percentage.

In fact, I’ve been trading it publicly live on my YouTube channel over the past few months, and thus far, knock on wood, I have a 100% winning percentage.

Having a trading strategy is key, but how do you actually place a trade? In this article, I will show what steps you need to take, from what type of account you need, to how exactly to place the trade.

I’ll show you these steps using two popular brokers, first on tastyworks, and then on Interactive Brokers because I know that many international traders use this platform.

Getting The Right Trading Permissions

Firstly, you can trade The Wheel in any account you want, even in a retirement account. You just need to make sure you have the right options for trading permissions.

When it comes to options trading there are four levels. On any account opening form they ask you, as any broker would,

“What type of activity do you plan to conduct in your options account?”

It doesn’t matter whether it is a cash account, a margin account, or a retirement account, all you need for trading The Wheel strategy is the lowest permission possible which is Tier 1.

With Tier 1, you can write and sell covered calls, as well as writing and selling cash-secured puts. This is exactly what we are doing with The Wheel strategy.

So this is step number one because if you don’t have these permissions, there’s not a whole lot that you can do.

Contact your broker and make sure that you have Tier 1 options permissions, which again, are writing covered calls and cash-secured puts.

If you have a higher Tier, like Tier 2 or 3, that’s okay, because Tier 1 is included in the higher Tiers.

The 4 Things You Need To Know

Before placing a trade, there are the first four things that you need to know:

What type of option are you trading? Are you trading a call or a put?

You need to know what is the expiration of the option.

What is the strike price?

What’s the minimum premium that we want to get in this trade when trading The Wheel strategy?

For those who may not be aware, when I take a trade I send out an alert notifying those who opt into our Power Income Alerts feature. I recently sent an alert out for a trade with WYNN that I recently took.

According to this alert, the idea is we believed that WYNN would stay above 70 by October 30th, but if it is less than $70, we would be assigned shares, then sell calls against the position.

The alert contained the four things needed to know in order to place the trade. It had the strike price, the expiration, and the credit that we wanted to achieve.

With this information from this alert, I’m now going to explain to you how would enter this trade in tastyworks, and then I will explain to you how exactly you do this on Interactive Brokers as well.

How To Enter A Trade In Tastyworks

Once you bring up the tastyworks platform, the first thing that you need to do is enter the symbol.

In the upper-left-hand side, we would enter WYNN because this is the stock that the alert went out for, so we type in W-Y-N-N.

Now, the second thing is, as soon as we bring it up, you click on the “TRADE” on the left-hand side.

After you click the “TRADE” tab, you have to select the expiration from the list that populates.

According to the alert, the expiration we are looking for is October 30th so this is the expiration we would select.

Now you’ll see all the calls on the left-hand side and all the puts on the right-hand side.

You just click on the bid price, and after clicking, it’ll say “S1”.

So this means now that you are selling one contract.

Now, depending on your account size, you might want to sell more than one contract.

This is why the alert will tell you the buying power that you would need to trade one option if you want to trade it cash secured, which I highly recommend you do cash secured, and that would be $7,000 for each option that you want to trade.

So for me personally, in the account I was using, I wanted to trade three options so I adjusted the quantity until I saw three options.

So the next thing is that you need to specify is the minimum amount of premium that you want to achieve.

In the alert, I specified that you should receive at least $0.50 credit.

The bid/ask of this option right now is between $0.80 for the bid and $0.84 for the ask, and it makes sense to go with the mid-price which most brokers suggest.

Now click on “REVIEW AND SEND”, and then you have the opportunity to quickly reviewing your order.

So now we have three WYNN options here that we are selling (-3), with an expiration of October 30th, and a strike price of 70.

You’ll see a P which stands for “put,” and STO means “sell to open.”
The limit order I used to sell it was at $0.82.

Now $0.82 is above the $0.50 credit that I suggested that you get at a minimum in the alert, so if you are able to get more than the minimum, good, do it.

There are estimated commissions and fees, and then you just have to hit “SEND ORDER” and the order gets placed.

You now just have to wait to get filled. If you’re not getting filled right away, you can adjust your bid and ask, so instead of going for $0.82, you can then try lowering your bid to see if you get filled.

As you can see, it’s very simple, and next, I want to show you also exactly how to do this on Interactive Brokers, and it’s just as easy.

How To Enter A Trade In Interactive Brokers

All right, so let’s go over how to place a trade with the Interactive Brokers platform.

Now I will be using the information from the same alert we used when placing the tastyworks trade.

This platform looks slightly different, but the functionality is always relatively the same.

There will be a place where you can enter the symbol, so we are typing in WYNN as the symbol in the upper left.

As soon as we hit Enter, it will ask us if we want to trade stocks, or do we want to trade options, so of course, we pick “options.”

This will bring up the options chain.

An alternative way to bring up the options chain is to click “New Window” above the field where you input the stock ticker and click “OptionTrader” to bring up the options chain.

I will look almost similar to how it looks on tastyworks.

So here again, we enter, simply W-Y-N-N and now we need to pick the expiration.

The expiration going back to the alert is October 30th and a strike price of 70.

Just like we did in tastyworks, after selecting the strike price of 70, we click on the bid.

Once we click on the bid, it will bring up the order at the top.

It asks for a limit order, and we can also adjust the number of contracts.

So instead of trading one contract, we can trade three contracts.

We can also adjust the limit order to 82, as we had with tastyworks.

When we’re done, all we need to do right now is hit the T for Transmit.

Summary

As you can see, there are differences between these packages.

I personally use Interactive Brokers a lot, and it is very popular with international traders.

I also use the tastyworks platform and find it a little bit easier to use.
Now you know how to place a trade according to the Wheel, using tastyworks and Interactive Brokers.

Other brokers, other than these two, will be very, very similar.
After reading this article, you now know what type of account you need for trading The Wheel Strategy, and you can use a cash account, a retirement account, or a margin.

It doesn’t matter as long as you have Tier 1 options permissions meaning you can write/sell covered calls, and cash-secured puts.

Within the platform, all you need to do is input whether you’re trading a call or put, the expiration, strike price, and what’s the minimum premium that you want to collect. It really is that easy.