Transcription
Now, I'm going to show you how to utilize the wheel strategy on HIMS using options. So, his and hers health, and I believe this is one of the top 10 stocks to do this strategy on, and it's worked very, very well for me. So, I'm going to deep dive into exactly how a professional options trader analyzes the company and then does the wheel option strategy so that you could apply these same principles yourself. 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.
Now, if we take a look at my account, okay, this account is strictly for doing the wheel option strategy. Now, if you want to follow me on my 8-figure goal with this account, be sure to hit that subscribe button down below and give this video a thumbs up if you get any value out of it.
Okay, so let's go ahead and go to my realized gain loss. I want to show you the past 3 months. I'm going to go ahead and refresh this so you can see that in the past 3 months, we have generated 122K utilizing the wheel option strategy with HIMS in the portfolio. So I'm going to deep dive into exactly how I do it. Obviously, these results vary month to month.
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. And if you do want to work more closely with me after watching this video and join my mastermind of 300 high-level options traders and investors that all started as beginners and are now doing this professionally, you could do that. You could find that in the top of the description as well. You could watch this free training, and I do have all my client testimonials right here that I upload on a weekly basis, new ones as well. So you could do that, book a call, and I'll see you there. But let's go ahead and dive into it.
So, what are the three criteria for the wheel strategy? If you've never heard of the wheel strategy, I'm going to briefly run through it, and then we're going to deep dive into exactly the nitty-gritty, the steps of how it's performed. Okay? But basically, what we're doing is we are first selling cash-secured puts. And what that means is we are selling an option that's kind of like, think of it like stock insurance, okay? Or like car insurance, right? We pay a premium every month for car insurance, and hopefully, we don't have to use it. But if we do, all right, we use it one time, and we'll probably pay more in car insurance premiums throughout our lifetimes than the cars were actually worth. Okay?
Now, it's the same thing when we are selling a put option. We're selling a cash-secured put. We are selling an option to someone who pays us a premium, and the worst-case scenario is the stock goes down below our put price, and we are forced to buy 100 shares. That lets the investor get rid of their shares at a lower price because maybe they just want out. Maybe they're at a huge profit, and they don't want to lose anymore, right? And we get to buy those shares at a discount. So that's why I do it. I sell cash-secured puts. I collect premium every month, and if the stock doesn't go below my put price, then I just keep selling those puts, and eventually, the stock does go below the put price, and I get assigned shares.
Now, when I have those shares, I generate income by selling covered calls. So, I sell a call option against my shares. And if the stock stays below, I could keep doing it. Then, let's just say 2 months later, the stock goes above my covered call price, I will have to sell my shares at that price at a profit. So, I get share appreciation plus I get a covered call premium. Okay? So, I get paid a premium plus appreciation. And now I have cash to go do a cash-secured put again. And that's why it's called the wheel because it's just a cycle like that. Sell puts, get assigned, sell calls, stocks get called away, sell puts again. Okay, so that's a basic version of it. But don't worry, we're going to deep dive into it.
So, three criteria. All right, you have to follow these criteria because a lot of people say, "Oh, well, what if the stock keeps going down?" Well, you probably chose the wrong stock for the wheel strategy. The wheel strategy is a neutral to bullish strategy, so it works best on stocks that are trending upwards for a long time. So, I'm going to show you exactly, um, the HIMS chart and why I like HIMS. Okay, if we look at the chart, yes, for the past couple weeks, it's been on the downturn, but if you scroll back, okay, you look back, I like to zoom out about a year and a half. That's kind of my criteria. Has to be upward trending for the past year and a half. Okay, this stock from 2024 to now is upward trending. If you just draw a line from where it was then, okay, to where it is now, as long as that line is upward trending, you're good to go. Okay, so that's the first criteria. And that's why I like HIMS because it's a nice upward trending chart. Yes, volatile along the way, but upward trending overall versus stocks like AMD, which is Advanced Micro Devices. Okay, I just want to show you an example of a stock that wouldn't meet my criteria is because this stock since 2024, all right, up here, um, if I draw a line right from this point a year and a half ago to now, right, this stock has done nothing. It's slightly downward trending. So we don't want to trade stocks that are like that because, you know, this stock could go down for a long time. It could probably continue downwards, and you don't want to get stuck in a stock that's going downwards when you're doing the wheel options strategy. So that's just an example.
Now we have that covered. Great chart. Okay, upward trending for the past year and a half. Now the second one is great valuation. So the first thing I look at, real simple, PE ratio. That's price-to-earnings ratio. Meaning how much are you paying to own that stock? Okay? So right now, we're not paying $46 to own HIMS. We are paying a multiple, right, of what they actually earn per share, which is 58. So their PE ratio is 58. The S&P 500 right now is, I think, around 26 to 28 PE ratio. So it's higher than the S&P 500, but it's a growth stock. So that's, um, pretty typical. Okay. We ideally want a PE ratio less than 100. Okay? So, they have positive earnings, but they're not, you know, the earnings aren't too low to where the stock is trading at rich valuations. But, as you can see, it's below 100. We're good to go. Okay. You don't want a negative PE. Obviously, from one to 100, that's kind of where you want to stick in between. So, this stock looks good as far as PE ratio.
Now, if the PE ratio is higher, above 100, I'd want to look at cash on hand, which if we do look at cash on hand for this company, they have 1.12 billion, enough to cover all their debts. So, that's totally fine. They have a lot of cash. Great. Now, I also like to look at their investor relations booklet just to see who's on the team, who's on the executive team, and are they selling a lot of products? Right? So, HIMS Health is a telehealth company, and they sell, right? They have, um, services like doctors and healthcare and prescriptions, right? So, as you could see, their team is stacked with very high-level individuals. Dudham, he's the CEO. Yi Okoup was the, uh, he worked at Uber, Chief Financial Officer. Nadair Kabani, Chief Operating Officer, he was at Amazon, who actually built out Amazon Pharmacy and PillPack, the acquisition of PillPack. So, big player right here. Um, this is a new one. Dear Ja Kuar, Chief Product Officer, who was at Robinhood, who actually built out, helped build out Robinhood Gold subscription. So, another very big player there. Um, they have a wonderful executive team. So, I like that. Okay. They got good players on their team.
Now, if we go to their long-term vision, we kind of see like their financials. I like to look at that. You could see like they show you exactly total number of customers in the space and how much share they have compared to competitors. So HIMS Health has a majority share of customers and sales in the telehealth space compared to their competitors like 30 Madison, Roman Health Ventures, N-Crology, BetterHelp. Okay? So that's what we want to see. We want to see a growing company that's taking advantage of, um, most of this market. Okay? So that's good.
Now, if we go further into the, um, into the financials, you could see that, you know, where are they generating their revenue? Okay? Well, they have telehealth, they have weight loss, mental health, Hers Derm, HIMS Dermatology, uh, sexual health, and they are releasing, um, you know, hormone medication, which is going to be another avenue for them to generate revenue. So that's what we want to see. Okay? Another key thing of them expanding customers is their global expansion of their platform. So they just acquired a company in the UK that already has 1.2 million patients, and that is expanding them globally. So that's what we want to see, a growing company, new customers, generating more revenue and profits, and that's typically what we're seeing with HIMS. Okay? So, uh, with that said, yes, there's lots of, um, things that happened recently. HIMS revenue didn't come in quite as good. Uh, short-term, these things will affect the stock price, but long-term, we want it to be upward trending. Okay? So that is going to be great valuations. Check.
The third one is great premiums, which we'll get into. We're going to take a look at the options chain. But first, I want to talk about the VIX cash allocation levels. So, if you've never heard of the VIX, this is something that you should know about before trading options or before investing in the first place. Okay, the VIX is the fear and volatility index of the S&P 500. Now, I manage my money like a hedge fund manager. I have cash at certain times, and I'm cash-poor at certain times, right? I'm not always invested in the markets, especially when the markets are at all-time highs and are greedy. So, we're going to take out the VIX levels. If you need to screenshot this, do that. But basically, VIX between 10 and 12, super greedy. There's no fear in the market, and I have about 80% of cash on the sidelines. Right now, we're between VIX 15 and 20. So, I could have 60 to 80% of my cash allocated towards positions or 40 or 20 to 40% in cash sitting on the sidelines. Right now, I have about 16. So, I'm a little aggressive.
But if we look at the VIX, okay, we're going to take a look at the VIX. You could see that the VIX is pretty low. Every time this thing spikes, the market crashes, okay? So, as you see, the VIX spiked, and the market QQQ came all the way down to 402. Okay, it came down 25% when the VIX spiked above 60. Now, this was a wonderful opportunity that I took advantage of because I had cash right on the sidelines, and I actually went all in. I was 100% invested at this moment, and the VIX subsided, the fear subsided, came down, and the market rallied back. Okay, so that's why we take advantage of the VIX and we kind of see where that's at to make sure we have proper cash allocation levels. All right, so that's another thing I just wanted to go over before we get into actually trading options.
All right. Now, let's talk about the wheel strategy on HIMS doing cash-secured puts. So, again, if you look at the diagram next to me, let's just pretend that this price X is where we're going to sell our cash-secured put. So, we're going to say we're going to go with the HIMS price right now. It's at 46. Okay? And let's just say we're going to sell the 40, the 40 strike price, um, cash-secured put. So, HIMS is trading over here at 46. As long as it doesn't go below 40, okay, we get to keep the premium of that option and do it all over again. Okay?
So, let's just say that happens after month one, 30 days. We sold this put option for 300 bucks, 40 strike, and the stock fell all the way down to 41, but didn't go below 40 by expiration. We keep the 300 bucks and we sell another one for maybe three, four, 500 bucks. Okay, we keep doing that over and over again. Let's just say the third month, the stock's trading at, um, 43. We sold the 40 put option, and the stock then falls down to 37. Okay, we're going to be forced to buy 100 shares at 40. All right, but we still get paid that premium. So, we got paid to dollar-cost average and buy the stock at a lower price. Okay?
So, what I typically do is sell a 20 to 30 delta cash-secured put depending on bullishness. What that means, 20 delta means there's a 20% chance of the stock going below that put price. Okay? Um, so you're going to get paid a little less because you're taking less risk. Now, if I took more risk, I went 30 delta, it has a 30% chance of going in the money or the stock falling below that price, I'll get paid a bigger premium. Okay? So, I typically stick within that range. I go 30 days to expiration for monthly premiums, and then I enter on a red day, preferably. Okay?
So, let's go ahead and take a look at the options chain. Uh, remember, this is not financial advice. I'm just sharing what I'm doing for personal, um, educational purposes only. As you can see, my HIMS position, 90K on the line, and my put, my 50 puts are actually in the money. So the stock is below my put prices. So in 14 days, if the stock stays here below my $50 puts, I will be forced to buy, um, 100 shares times 18 contracts. So, 1,800 shares, uh, which would cost me about 90 grand. Okay, which is totally fine because I get to make this 8.5K of premium. Um, and I got paid to dollar-cost average.
All right. Now, we're going to go into that position. And this is exactly what I do today at current prices. I would go out 28, you know, 25 to 30 days. Let's just go to 35 days out. All right. And I would go to the, I like to play it a little safer on HIMS. So, I'm going to go to the 22 delta, and that's going to pay a 3 and a half% ROI. Results vary based off of where the stock is at because these stock prices fluctuate, but 3 and a half% as of this moment right now. Okay? Um, if I wanted to get more aggressive, I could go to that 30 delta or 29 delta and make pretty much a 5% ROI in 35 days. Results vary, um, based off of where the stock's at, but depending on how bullish you are, um, you know, how bullish I am, I could go either the 40 strike or I could go to the 42 strike. It's really going to depend on how I'm feeling about HIMS. So, I would probably go for the 40 just to play it safe, collect my three and a half%. All right. And that would be, um, 133 bucks in premium. Okay, per contract.
So that's pretty cool because that would allow me to get down to the 40 area. So 40 is going to be actually right here. Okay? So the stock would have to fall, let's calculate. The stock would have to fall from today's prices. It would have to fall about 13% for me to get assigned at the 40 strike. Okay? So it'd have to fall below 40, about 13%. I'd be getting a 13% discount from current prices, and I'd get paid 133 bucks for that option. Okay? Now, from all-time highs, right, from previous highs, actually, that's a 43% discount. So, relative, that's actually a big discount. And that's fine because if I get assigned, then I can ride this stock back up. So, that's why I like the cash-secured puts because I get paid to dollar-cost average.
So, that's going to be the, um, the cash-secured put. Now, what happens if I get assigned, right? And I'm probably going to get assigned on those 50s. Well, then I'm going to sell a covered call. Okay? Now, how a covered call works is let's just say the stock is, you know, trading at my strike price 50, that I got assigned at 50, and it's trading at 50. Okay? I'm going to sell the 55 covered calls in hopes that the stock doesn't go above that. But if it does, cool. I'll let the shares get called away, and I'll make a premium plus a profit on the shares, a $5 profit on the shares. Okay? So, I'll do that every month until the shares get called away. Sometimes I do it weekly, but for this wheel, let's stay, you know, I like to sell the 30 delta, go 20 to 30 days to expiration. And I typically stay around that 20-day mark, and then I enter on green days, preferably, so I could get a little bit higher and away from where the stock's at.
So let's go ahead and look at the portfolio. And in fact, we can do it based off of, um, you know, this real situation right here where the stock is well below my put price and I might get assigned at 50. So let's go ahead and do that. Let's just pretend I got assigned at 50. All right. What I would do is I'd go out 21 days. All right. And again, I'd go to that 30 delta, which is about a dollar above my cost, right? So, I'd make a dollar if the shares go past that. But, you know, maybe I want a little bit more, um, you know, a little bit more share appreciation. So, maybe I go to the, uh, 52 strike or even the 53 strike. I'd make about a 2% ROI on the covered call premium, and I would make $3 in appreciation, which is another, um, you know, percent or two. Okay, so that would be pretty good there. So I like that. I'd sell this one, pick up a 100 bucks, and wait for the shares to go above 53 to get those called away in 21 days and make a double premium. Okay, so appreciation plus a premium. So that's exactly how to do the covered calls.
Now, there is another strategy that I like to implement only at specific moments, which is the LEAPS call options. This isn't part of the wheel strategy, but this is how I supercharge the wheel. Is I will buy a 70 delta LEAPS call option one year out or more and use that to basically lever up my money and ride the stock up. So, how this works is I'll buy a 70 delta LEAPS call option. The stock has to be below the middle Bollinger Band or even at the lower Bollinger Band, preferably, and VIX has to be above 15. So, VIX is actually at 15 right now. So that would work out, and the stock is actually almost to that lower Bollinger Band. So let's just say tomorrow it went down to 42, right? Went to that lower Bollinger Band. What I would do is I would buy a call option and ride it back up. So, every time this stock has hit this lower Bollinger Band, as you could see, it usually goes back up, and it did it right here, and it went back up. So, it could potentially do that right here again and maybe have a nice bounce, and if it gets to that middle Bollinger Band line right here, that's when I will sell. Okay?
So, I'm going to show you how I do that. I usually make anywhere from 15 to 40% ROI on these plays because they're very quick. But I would go out to, you know, January 15, 2027. I'd grab the, you know, 75 delta LEAPS call option. I know I said 70 delta, but on HIMS, you have to go a little bit higher, which means for every dollar that this stock moves up, you'll make 75 cents, or I'll make 75 cents. So that would be the 40 strike. I'd pay 2100 bucks instead of 4,600 to control 100 shares. Okay? So you're levering the money. It's like a 2x leverage, right? And I would buy that, and then I would just wait for the stock to go up to the mid Bollinger Band, and I'd get out quick.
Now, why I go so far out in time is because the theta decay when you buy an option, theta works against you. Meaning I will lose about $1.48 per day that the stock doesn't go in my direction. Okay? So, um, $1.48 is not that bad because if I were to play a short-term call option, right, this one is losing about $5.60 per day. All right? And it expires in a short amount of time. So, once it expires, you're pretty much out of luck if the stock didn't go in your direction. So, that's a quick rundown of the LEAPS option, but I do cover that in a different video. I'm going to link another video, another tutorial with one of my favorite stocks to do the wheel strategy on. Check this one out, and I'll see you in the next one.