Transcription
In this video, I'm going to show you exactly how I trade the wheel strategy utilizing options on one of my favorite stocks in the portfolio, Palunteer. I'm going to show you exactly how I've been trading it in the past. I'm going to show you live trade logs and exactly how much premium I've collected, and I'm going to show you how to effectively deploy this strategy. So, let's go ahead and jump into it.
Remember, this is not financial advice. I'm just sharing what I'm personally doing for educational purposes only. Results may vary. Now, for documentation, I do want to show you my account and live trade log. So, this right here is my account. If you do want to see me hit my 8 figureure goal in this account and follow along the journey, make sure to hit the subscribe button down below. And if you get any value out of this video, please hit the thumbs up button for me. That would be greatly appreciated.
Now, we're going to go into the realized gain summary for year to date. I'm going to press the refresh button. And as you can see, I've collected 282K utilizing the wheel option strategy with Palunteer in the portfolio. Results vary monthtomonth and yeartoyear, but so far we are on track to meet my goals this year.
Now, if you do want my free trade ideas, that will be on my Instagram and my free newsletter, which are both down in the description below. So, make sure to be subscribed to those. And also, if you do want to work more closely with me one-on-one with my 316 other highle traders and investors in my options mastermind, that will be at the top of the description. I have a free training here for you that you could watch and then also all of my client testimonials that we upload weekly to the site. So, if you want to watch some of those and then book a call with us, I'll see you there on the call.
Now, let's go ahead and jump into it. The three criteria for the wheel strategy. This is the most important when getting into the wheel strategy with options because if it doesn't meet these three criteria, it's going to be very, very hard to trade and be profitable with this strategy. So, a lot of people say, Ryan, what if the stock keeps going down? You know what happens? Well, most likely that stock doesn't meet the criteria in the first place. So, let's go ahead and kind of go through this. We're going to talk about this quick little diagram uh next to me because if you don't know what the wheel strategy is entirely, let's just kind of blast through this and then we'll dive into the nitty-gritty.
But basically what we're doing is we're selling cash secured put options. Okay? So basically we're selling a put option that's down here below where the stock is trading and as long as the stock doesn't go below that price, we get to collect the premium. If it does, we get assigned a 100 shares at that strike price and we get to keep that premium. So, it's like dollar cost averaging into stocks and getting paid to do it. Now, I like to think of it like selling stock insurance. Okay? There's someone out there that wants to buy these put options to protect themselves to say, "Hey, if the stock goes down to this price, I just want out. I'll take my profit on the stock that I've been in for multiple years and I'll just get out." Right? And that allows them to sell their shares to us at a discount. we get the stock at a discount from all-time highs and they get to get relieved of their shares. Okay? So, um you know, think about think about it like car insurance. We, you know, pay a premium every single month for car insurance and most of the time we're not going to use it, right? In fact, throughout our lifetimes, we'll probably probably pay more in car insurance than what the car was actually worth. And it's the same with these people are paying us for stock insurance.
So, eventually we do get assigned on those 100 shares. And that's cool because now we have shares at a discount and we could go ahead and collect covered call premium. So we're selling calls against our stock and as long as the stock doesn't go above our call price, we get to keep those shares. But if it does, we have to sell our shares at a profit and also get a premium. So that's double the income. That's why I like the covered calls because it's like, you know, double the premium. So stock gets called away, we profit on the share appreciation and the covered call premium, and then we run this whole strategy over again. Okay, so that's basically the gist of it, but we'll dive into the nitty-gritty, so don't worry.
Okay, now number one, the stock has to have a great chart. So if we look at the Palunteer chart, okay, I'm going to go over to Palunteer, we could see that for the past year and a half, I like to go one and a half years out typically because that gives us a longer term basis of how this stock has performed. Um, if we go back to 2024, we could see the stock has been right here. And if we just draw a line from where that point was to now, we could see this is a massively uptrending chart. Okay, so that is exactly what we want to see. We want to see an upward trend on the chart and that gives us a good basis of okay, the stock meets that criteria. Great chart, upward trending for one and a half years.
The next is great valuations. So the first thing I like to look at on a stock is the PE ratio. This is what we are actually paying for the stock compared to what they actually earn per share. So price toearnings ratio. Okay. Um, now ideally we want that under 100 and if it's not under 100 we want them to have enough cash on hand to cover their debts. Okay. So for Palanteer if we look at this stock and we go to their PE ratio we could see that their PE ratio is very high. It's 518. Now, yes, they are a positively earning company. They earn something. So, they actually earn money per share, which is great, but it's not that much. So, the price to earnings ratio is very high. Now, because it's above 100, now we have to do go down here and look at their cash to debt ratio. So, their debts last quarter 237 million. Their cash almost 1 billion. So they could pay off their debts about four times over. So not really worried about this company. They could weather a storm. They could weather a recession. They have enough cash on hand to cover all their debts. So that tells me they're in a very strong cash position. And I'm not really worried about the company. I also like to look at their net margins, which we'll get into um right here. As you can see, you know, US revenue grew 68% year-over-year last quarter. Their adjusted free cash flow $569 million representing a 57% margin. Okay, so profit margin there is absolutely phenomenal. We like companies that have high margins. They earn a lot of cash and we're not worried about them, right? So that meets that criteria.
And the lastly is great premiums. Okay, which we'll get into first. I want to go over um you know a couple pieces of news as well because as far as Palunteer goes, I want to update you on how they're doing. So again, last quarter wonderful results. August 4th they had amazing earnings, the best earnings ever, right? And they're securing they closed 157 new deals of at least one million, 66 deals of five million or more, and 42 deals of $10 million or more. Okay. Um, as we see right here on Yahoo Finance, they just secured a uh brand new deal with SOMO, a multi-year AI partnership, which is worth about um, let's see, if we scroll down, it'll say $50 million expansion. Okay, so that is wonderful, right? We want to see these pieces of news coming in, meaning Palanceier getting new partnerships and new clients. when they sign on with clients, these are long-term deals, five-year deals, 10-year deals, and they're a basically a software company, an AI software company that once integrated, the company is it's going to be very costly for them to get rid of this software. It's a recurring revenue and their business is going to be highly integrated with Palunteer's AI platform. Okay. So, Fujitsu also expanded their um partnership with Palanteer, which they expect to make a hund00 million by end of year fiscal 2029. Okay, so wonderful news, right? Uh if we see Palanteer, Palanteer has taken quite a dip right now. Obviously, by the time you're watching this, it might be different, but we like to see these dips as prime opportunities. Palanteer is currently down 18% from all-time highs. So, it's a wonderful stock to run the wheel on and I'll show you exactly how the portfolio has performed even though we had a huge dip like this. Okay, so um let's go back here and let's get into it.
Okay, so before we jump into the cash secured puts, I want to talk about VIX levels. This is very important as a portfolio manager to figure out how much cash I should be investing or how much cash should I have on the sidelines because we don't want to be all the way invested when the market's at all-time highs. All right, that is a bad use of capital when it comes to the wheel option strategy because when the market's at all-time highs, premiums in those options are a little bit lower. Okay, so VIX 15 to 20 is um where we were sitting. We're actually now at VIX 12 to 15. So I could have around 40% to 80% of my cash on the sidelines. Right now I have about uh 20% that's freeing up this Monday. So um I'm very aggressive, but I'm okay with that. At least I have a little bit of cash there. 20% sitting on the sidelines ready to go just in case the market tanks. The reason why I didn't um I don't have more cash is because the VIX was just at 17 just yesterday, right? The VIX went down, meaning there's little to no fear in the markets right now, which we should be greedy when others are fearful and fearful when others are greedy. So now things are starting to get greedy. The VIX is low and I'm getting a little bit more fearful having more cash on the sidelines. This is just something to look at when trading options, okay? or investing because when we have these big spikes in the VIX which is the fear and volatility index of the S&P 500 these are perfect opportunities to buy the dip right when this happened when VIX hit 60 that is when QQQ bottomed out right here at 403 back during the tariffs crash and I went all in 100% invested okay and that proved out to be a wonderful opportunity so yeah anytime this thing spikes up good time to allocate more cash and sell more cash secured puts All right, so that's just a quick overview of the VIX, but let's go ahead and get into it.
The wheel strategy on Palunteer cash secured put. How do these work? So, let's look at the diagram. Let's just pretend the stock is trading at uh we're actually going to go off the current stock price. It's trading at 157. Okay, right here. And we're going to go ahead and sell a put option that's down here at 150. As long as the stock at the end of 30 days does not go below our 150 strike price on our put option, we get to keep our 500 bucks. All right. Um, now if the stock goes below this, let's just say first month, okay, stock is at 157, we sell the 150 put option, stock finishes at 153 by expiration. Cool. We keep the 500 bucks and we do it all over again. We sell the 150 put option, 500 bucks. stock finishes, let's just say it finishes at 148. Okay, it finishes below our put price of 150. Well, we still get to keep the 500 bucks, but now we have to buy a 100 shares at 150 bucks. So, that's going to cost us $15,000, right? U so now, you know, we're we have the shares and we have to sell covered calls, which we'll get into in just a moment. But let's talk about the cash secured puts. Okay.
So, what I like to do is sell a 20 to 30 delta cash secured put depending on how bullish I am. If I'm very bullish, I'll sell a 30 delta, collect more premium. If I'm bearish, I'll sell not bearish but just not as bullish, I'll sell a 20 delta, which means it has a 20% chance of the stock falling below the put price. Okay, 30% chance up here. So, you get I get paid more premium, but I'm taking on a little bit more risk because I'm going closer to the stock. I go off I go out 30 days to expiration for monthly income and then I like to enter on red days like you know today and yesterday this would be a perfect day. So let's go ahead and dive into it.
Remember this is not financial advice. I'm just sharing what I'm personally doing for educational purposes only. Results may vary but if we take a look at the portfolio. Okay, my current position on pounds here is 131 grand in cash secured puts and actually 32 of it uh yeah 131 grand in cash secured puts and I have some leaps call options which I'll talk about later in the video. Okay. Um, right now almost all of my cash secured puts my 167 and a halfs are in the money. So I will be assigned a 100 shares in 21 days if the stock finishes below 167.5. Okay, totally fine.
Now, if I were to sell a put today, I would go out, you know, 20. Again, 30 days is optimal. So, we'll just go out 35 days. All right. And I'm going to go to the 30 delta, which would actually not be the 150 strike. It' be the 147 strike. All right. So, I'll sell this um cash secured put 147. Right. At current prices, I would collect $535, which is a 3.81% ROI. results vary based off where the stock is. Okay. Um, you know, and basically that would get me on the chart. Let me show you. All right. Uh, a 147 would get me right here. Okay. So, you know, it would give me a nice little buffer. The stock has to just stay above this line. All right. The stock already has came down so much from all-time highs. If it came down additional to below 147, that would be a 7% discount from current prices. And from all-time highs, that would be a 22.9% discount on the stock. So, it's great. If it does go below, that's fine. I got paid and I got a big discount on the stock. So, um 3.8 ROI, that's not bad either. So, that's exactly how to do the cash secured put if you want to be aggressive.
Now, if you want to be a little bit more conservative, right, I would go to the 25 delta or maybe even the 20 delta, right? I could go down to the 20 delta, which is something I do sometimes in another portfolio. That's the 139 strike. I'd collect 335 bucks today at 2.53 uh ROI, percent ROI, which again, results vary based off where the stock's at when I sell this put. Um, so that's pretty good. But let's look at the chart on how far I could get down at a 20 delta. So 139 would be all the way down here. Okay. So again, you're you have I have flexibility with selling put options. I could get further away from the stock, collect collect a little bit less premium, or I could get closer to the stock and collect more premium. So from current prices, that would be about 12% away at the 139 strike. Okay, so that's the cash secured put. Very easy to do. You just click on the the bid price. Okay, so I'd just click on the bid and then I'd go ahead um and try to get as much premium as possible. So, I'd click on the mid price, review and send, and boom, the put would be in the uh portfolio. Okay, so that is the cash secured puts.
Now, let's go ahead and talk about the covered calls. Once I get assigned, let's just say I got assigned um let's just say I got assigned today on the 167 and a halfs that I have. Okay, the 167 and a halfs. We'll just use that as an example. All right. U we'll go back here. if I got assigned. So when I sell a covered call, ideally I'd like to go up above my cost basis. So X will be 167 and a half. Ideally, I'd like to get above that to collect some premium until the stock goes above 167 and a half or, you know, higher than my covered call and I'd make some appreciation and get paid a premium. So, I like to sell 30 delta covered calls, go 20 to 30 days to expiration for, you know, week bi-weekly to monthly income, and then um enter on green days, preferably. So, let's go ahead and do that. All right, we're going to go to the options chain. Let's just say I got assigned at my 167 a half today. So, the stock is well below my cost basis. Not ideal, but that's okay. We could still collect some income. So, I'm going to go out, let's just say 28 days. And at my cost basis, 167 12, I'd be able to collect $500. Now, I'm probably going to go a little bit um above my cost basis, right? I could go to the 175 strike, collect 310, which is still a decent income there. That's about um you know, almost a two a little under a 2% ROI in 28 days. results vary based off where the stock is, but on my shares, I'd be collecting, you know, um what is that about seven and a half dollars in appreciation. So that's also another additional maybe 2 3 4%. Okay. Uh so that that let's just say 3% plus the 2% I collect on my covered call premium is a 5% ROI in 28 days. Results vary. Okay, so that's exactly how to do that. I would sell the covered call by clicking the the bid price right there. Sell one covered call against my 100 shares and I try to collect as much premium. Review and send. Boom. The covered call is in the account. Okay. So now I just wait 28 days and it hopefully pounds here expires above my um strike price of 175 and I get my shares called away at a at a appreciation and I get the covered call income. Okay. So that is exactly how that works.
Now what exactly do I have to do um to boost right to boost the returns? I do this by doing uh cover leaps options. Okay. Now this is something that's not part of the wheel strategy. This is something that I added on to tailor the wheel strategy to fit my needs. Okay. So this allows me to kind of boost the returns on a monthly basis. Um, and how I do that is I buy the 70 delta leaps option one year out, sometimes two years out. I get the stock, you know, ideally below the middle Ballinger band to lower Ballinger band when VIX is above 15 and I sell once the stock is above the middle Ballinger band. So, what's cool is I actually have a trade on right now that you can see. Okay, I have the 145 call option that expires Jan 15, 2027, which is 511 days out. Okay, I'm currently down on these about 4%. Because I didn't get the perfect entry, but uh what I did, okay, so if I had to do it today, I'd go out here. I'd buy the 70 delta exact strike price that I currently have, which I'd have to pay 5,200 bucks to own, right? But I get to control 100 shares instead of buying a 100 shares right now, which would cost me 15,000. So I get a 3x leverage factor on my money by buying this call option, right? That is very far out. So, I give myself plenty of room to be right. Plenty of time to be right. Right. And how I did that was um basically I got in right here. Okay. When the stock was at 160. Okay. Wasn't the perfect entry because the stock did fall down to this lower Ballinger band, which is a perfect entry. You always want to, you know, grab it at the lower Ballinger band, but I didn't know if it was going to bounce up the next day or if it was going to fall further. So, I just took my shot there. And now the stock has bounced back up. But where am I going to exit this? Well, I'll probably exit once the stock kind of recovers and goes back towards above this middle middle Ballinger band line, maybe around the 180 area. At that point, I'll probably be up anywhere from 20 to 40% um on that position. And I'll close it out. Okay? Even though the cover the LEAPS option doesn't expire until 500 days, that's fine. if I make 20 to 40% in four weeks or less, my uh risk management is to close that position and just take the profit. So, that's exactly what I plan on doing with this. But, um it's cool that I actually have that in the portfolio to show you how I do it. Okay, so that's exactly how we do the leaps option.
Now, if you want to see exactly how I do this strategy on another stock, then make sure to watch this video right here. Make sure to hit the thumbs up button and I appreciate you being here. I look forward to working with you and take