Transcription
In this video, I'm going to show you exactly how to trade the wheel strategy with options successfully. In fact, by the end of this video, my goal is to have you number one, being able to analyze any stock in the stock market like a professional. Number two, have extremely high success rates with your trading, and number three, change your life forever, as this has changed mine. So, let's go ahead and dive right into it.
I'm going to show you exactly how I've been able to trade the wheel strategy with a stock called Iris Energy or IN that has contributed to a 10% gain in the past month in my portfolio. Obviously, results vary month to month, but I'm going to show you exactly how I did it with a step-by-step breakdown. 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 the account, you could see that we are at brand new all-time highs, even though the stock market is still down about 31.5%. So, the cool part about this strategy is that we are able to collect premiums while we sit and wait. So, um if you do want to see me hit my 8-figure goal in this portfolio, please click the subscribe button down below if you want to subscribe to the channel and follow along. Also, if you get any value out of this video, please hit the thumbs up button for me. I would greatly appreciate it and I appreciate you being here.
But if we go to the realized gain loss for the year just for transparency reasons, because not many people show this on YouTube and I want to make sure that we are as transparent as possible, just the current year. Okay, I'll go search. As you could see, we are up about $448,000 and IR has definitely contributed to these premiums that I've been collecting trading options and the wheel strategy. Now, again, results vary month to month, year to year, but I'm going to show you exactly how I do it. But before we jump into it, I do give away free trade ideas on my Instagram, my X account, and my free newsletter, which are all down below in the description. Check those out. Be sure to be subscribed because I give away free trade ideas for absolutely free. Also, if you do want to work one-on-one with me after you watch this video and you get value from it, maybe you even implement some of the strategies, I have a free training for you right here that's at the top of the description and all of our client testimonials that I upload on a weekly basis. So, be sure to check those out. But, let's go ahead and dive right into it. [snorts]
Three criteria for the wheel strategy. So, the wheel strategy, the wheel option strategy is one of the most powerful strategies I've ever stumbled upon, and it's something that I do with 95% of my capital in my portfolio. So, to break it down in simple terms, we're going to take a look at the diagram that's next to me. I'm going to quickly go over this and then don't worry, we'll deep dive into it. But basically, what I'm doing is I'm starting the wheel strategy by selling cash-secured puts. And what that means is I'm selling a put option, which is basically like insurance. So if someone has, let's just say, Apple shares and Apple's at $100 and they say, "Hey, they've owned this stock since maybe $10, right?" So they have a bunch of gain and they say, "If Apple falls down to $90, I just want to get rid of my shares. I don't want to lose any more money." They are going to put me the shares, right? So I'm selling puts in anticipation that if the stock does fall, I will catch those shares. I will be assigned those shares and I will wait for the stock to go back up. So, we do this on great quality companies that have a history of going up in the long term. So, I sell cash-secured puts. I collect a premium. Let's just say the first month I sell a put, the stock doesn't fall below my put price. I do it all over again the next month. Same thing happens. I do it a third month. And let's just say in the third month there's a little stock market correction or crash and the stock falls down and now I'm put the shares. Then I sell covered calls against my shares for additional premiums. So what's nice is that I'm collecting money, selling puts, and I'm collecting premiums, selling calls against my shares above my shares where I got, let's just say I got assigned at $90. I'm selling the $100 covered calls. Eventually, the stock goes back up past $100. Now I get my shares called away. So I collect income based off of appreciation and covered call income. and then I restart the wheel over and over again. So, it's just kind of a strategy like that, but don't worry, we'll get into it.
So, the first three criteria, which are the most important, and this is where most people get it wrong because they always say, "Ryan, well, what if the stock keeps going down?" Well, the stocks that we choose don't ever keep going down. They usually rebound uh through every crash, every bare market, and they have a history of going up. So there's many stocks like that like Apple, Google, Amazon, right? And sometimes we're able to find quality smaller companies like Iris Energy or Iren and we're able to trade this stock for a very long time. So I'm going to dive into it. How do I analyze the great chart, the great valuations and great premium?
So number one, let's just go to the chart. Okay, the chart has to be upward trending for the past year and a half. So very simple. Okay, you're just going to draw a line on the chart from a year and a half ago. So from from today, that's about late May. So we'll draw it from May all the way until now. And as you could see, the trend is upwards. That is exactly what we want. Okay, there's stocks out there that have downward trends. Like let's just say I'll show you a stock that has a downward trend like Lululemon. Very popular stock, right? They sell very popular uh apparel. But if you look the past year and a half, this stock has just been going down. So this is not a stock that we like to trade the wheel on because it's too difficult and if you get assigned and the shares keep going down, well that's not a good thing. Okay, so that's number one.
Number two, great valuations. So there's two things I look at, very simple PE ratio, price to earnings ratio, that should be under 100. If it's over 100, they should have enough cash on hand to cover their debt. So, we're going to take a look at Iron, which is Iris Energy. Okay. Um, and if we look at their PE ratio right here on Trading View, it's a 24. So, it's under 100, very low, which is extremely low for the AI sector. Okay. And then, uh, worst-case scenario, you know, if it was over 100, we look at their cash on hand. They have enough cash to cover their debts. As you can see, they have a billion dollars. Their debt is $965 million. So, they have plenty of cash and big profit margins. So very simple. You don't need to be too technical with it. Just look at the PE ratio. Okay. So that is the second thing.
Now also I like to understand what I own and what I'm trading the wheel on. So just to give you a background on IN or Iris Energy, okay, they basically solve a big issue right now. And the big issue is data centers. So there's so many companies out there that are trying to build data centers so that they have their own AI chips and their own uh trainable AI infrastructure and the problem with that is that there's electricity demands that can't be met. uh it takes time to build data centers and it takes a lot of capital especially if you're a small company or a midsize company and you don't have the capital to invest like Facebook or Google right or Meta or Google to build data centers all over the world right so I solves that issue they already have data centers because they're originally a Bitcoin miner and they will rent out their chips to you their GPUs to your business so you don't have to have a data center you don't have to have electricity. You don't have to have any of it. You just pay Iron and say, "Hey, I want some of your GPU power." And they will rent that out to you for very cheap. So, um there's many cost advantages. It's flexible, short-term. So, if the, you know, the company says, "Hey, we don't we don't want to rent anymore or we don't need the um the GPU power this month or this year," they could easily just, you know, not have to do it. So, it's very good for businesses long-term. And if we do look at their comp, the company fundamentals, okay, $240 million in revenue. They just signed an AI cloud contract with Microsoft. All right, they're profitable. They signed a a Microsoft contract which has a 20% prepayment. So, Microsoft basically said, "Hey, we want to partner with you. We need more GPU power. Of course, we're building data centers, but not fast enough. So, we need your infrastructure." and they partnered with Iron. Okay. Um, and if you take a look, as you can see, uh, Iron's expertise in building and operating a fully integrated AI cloud from data centers to GPU stack combined with their secured power capacity makes them a strategic partner. And that was Jonathan Tinter, president of business and development at Microsoft. Okay. So, the cool part about Iron or Iris Energy is [snorts] that they have data centers in very low-cost electricity sites. Okay. Like Childress, Texas or Sweetwater as well as um a lot of uh data centers in British Columbia. So this is a great company, very very advanced AI cloud renting GPU space and they're a Bitcoin miner. So very exciting and they've been profitable for the past four quarters making their PE ratio positive. So we know the valuations, we know about a little bit about the company, what they sell, what they do, very easy to understand, right?
The last thing is that they have to have great premiums. So we'll get into that in just a moment when we talk about cash-secured puts. But the very first thing I want to talk about is the VIX. Okay. So the VIX is the fear and volatility index of the S&P 500. It basically gauges how much fear is in the market. And the reason why I want to talk about this real quick before we go into cash-secured puts is because when we are selling options, we are selling a fear-based product, insurance, right? Just like car insurance, the more a certain car has been in accidents, the insurance is going to be higher for that model of car. It's the same thing with selling put options, right? The more volatile or more fear there is in that particular stock, the higher the premiums are going to be for the put options. And IN has very high premiums because it's a very volatile stock. Yes, it has a nice upward trending chart, but when it pulls back, it could pull back 10-15% in any given week. So, that's great for us put sellers because we can collect more premium.
So, with a VIX, I like to look at this and say, hey, how much cash do I need have to have on the sidelines because I don't want to be investing all of my money at the top of the market. Okay? And this is what 99% of passive investors do is they invest at all times and when there's a crash, they have no cash to take advantage of the dip. So now that I'm an option seller and we have a full group, Options Trading University with 650 members, right? We all follow the VIX cash allocation levels and manage our money like a hedge fund manager like Warren Buffett would, right? Warren Buffett has cash on the side and he's able to take advantage of dips. So, uh, right now if we take a look at QQQ, which is which tracks the NASDAQ 100, we had a pretty nice little pullback here. Okay, we went down about 8 almost 9% on QQQ. Okay, in just in the past month. Now, what happened to the VIX was that the VIX spiked up from 15 all the way up to 28. And if we take a look at those allocation levels, you could see that, you know, we were trading VIX. Um, actually we were trading above 25. So VIX 25 to 30 very fearful there's a lot of fear in the market. I would have 5 to 10% cash on the sidelines. So very little, right? But when there's a lot of greed back here when the market's at all-time highs, you know, VIX is at 15. We could take a look that was literally here at all-time highs, right? VIX was low. That's the time when I have more cash on the sidelines. As you can see, I had about 20 to 25% cash on the sidelines. So, very important to look at the VIX and the VIX levels uh to kind of gauge where you need to be with your capital allocation. So, if you have to screenshot this or pause this, do so because this is one of the most important lessons that you'll ever learn in your trading career.
So, now we could get into the cash-secured put. So, let's talk about it. The wheel strategy on Iren. So, what I like to do is start the wheel by selling a cash-secured put. Again, we'll go into it. So, let's just say X is where I'm selling the put at. Let's just say I'm selling the $90 strike put option on a stock. Okay, the stock's trading at $100. I'm selling the $90 put option for let's just say $300 bucks. Okay. If the stock by expiration in 30 days, let's just say the stock falls all the way down to $91, which is still above my $90 strike put option, I will collect that $300 and I get to do it all over again. Okay, do it all over again. The next month, the stock's at $102. Cool. Do it all over again. The third month, I sell a $90 put option. The stock falls down to $87. Now, I'm forced to buy 100 shares of the stock at $90, right? So, that's going to cost me $9K. and I still get paid that $300 premium. So, I got paid to dollar cost average, per se, on a good quality company. Okay.
So, what we're going to do is we're going to sell the 20 to 30 delta cash-secured put. All right? Depending on how bullish we are. 20 delta means it has a 20% chance of being in the money by expiration or getting assigned those shares. And a 30 delta is a 30% chance of getting assigned those shares. So, 20 delta, you're taking less risk of being assigned. ly I would get paid less premium. 30 delta I'm taking a little bit more risk so I would get paid a little bit more okay uh to take that risk of getting assigned. I like to go out 30 days to expiration for monthly income and then I like to enter on red days so I could get further away from the stock.
So, let's kind of talk about it. Let's take a look at INE and you could see that this stock has pulled back quite a bit. Okay, so it's a more volatile stock. It was down at one point about 48% in a couple weeks. Okay, so uh we want to be safer on this stock, but also we want to get in at opportune times when the stock is near uh these lower Bollinger bands. So this is one of my favorite indicators, pretty much the only indicator I need to trade options, which is Bollinger bands. And these state that 95% of the time the stock is going to stay within the bands and 5% of the time it'll go outside of these bands. But as you can see, when when it does do that, it usually sucks back in. Same on the on the downside. Went outside of the bands right here, sucked back in, touched the lower Bollinger band here, sucked back in. Okay. And it most likely will stay somewhere in this range. So, uh, we're going to take a look at the stock is currently trading at $48. Okay. And we're going to go into the account. And remember, this is not financial advice. I'm just sharing what I'm personally doing for educational purposes only. Results may vary. But we're going to take a look at the account. As you can see, I have about um $52K worth of shares. I have a thousand shares of Iron and then I also have some cash-secured puts that equal about $31,000. Okay. So, I have almost a six-figure position in this stock. All right. And what I would do is I would go out 30 days, December 26th, and I would go to the let's just say the 30 delta option. There is no 30 delta here. There's a 29 delta and that's the $43 strike. Okay. So, if I sold the $43 put option, I would collect basically somewhere in the middle of this $290 and $370. So, let's just say I collected, I don't know, $330, which is roughly an 8.3% return on capital. Obviously, results vary based off where the stock's at, but that is a very good return for me in 30 days. Okay, so I'm fine selling that $43 put collecting $330 bucks and that's to secure that. Okay, if the stock fell all the way to like $40 for instance, I would be assigned 100 shares which would cost $4,300 bucks, but I would also get paid that $330. Okay, which would essentially lower my cost basis by three by $300. Okay, so essentially my cost basis would be somewhere around $40. But that's exactly why I like to do this because if we take a look at the chart, okay, $43 from today's price is pretty far down. That's about um it's about 11% pullback from here. Okay, so the stock would have to fall 11% for from here for me to get assigned in 30 days. And it has to be below $43 on expiration day. Okay. For me to get assigned and from all-time highs, cool. got a 44% discount if that happened. So that's why I love it. I get paid to dollar cost average on good stocks and dollar cost averaging on this stock has proved to be a good idea because if you look at the history of the stock, it's just gone uh pretty much parabolic here. Okay, so that is exactly how we do the cash-secured put. Okay, I collect our premium, sell the $43. Let's just say we do this. The stock in 30 days finishes at $45. Cool. Now I could do it again. I could sell $43 or I could go a little bit lower and collect the same amount of premium. Right? Stock finishes at $50. Cool. And then let's just say the third month the stock goes below $43. I sell the $43 put. It goes to $40. Now I have to sell covered calls against my shares to collect some income. Okay.
So um we're going to go to the covered calls. So what I like to do is sell a 30 delta covered call. All right. And how it works is let's just say I got assigned at $43. I would sell a I don't know $45 or $47 covered call. That would give me a little bit of stock appreciation if the stock went above $45, right? I'd get my shares called away. I'd have to sell at $45. I had them at $43. So that's $2 of appreciation plus the covered call premium. Okay. So I like to just sell the 30 delta covered calls. Go 20 to 30 days to expiration. And I like to enter on green days. So we're going to go back. All right. And let's just pretend I got assigned today at $48. Okay, just for example purposes. I would go out about 15 to 25 days. So I'll go out 23 days. All right. And I'll go to the 30 delta, which is going to be the $60 strike. All right, that's going to I'm going to get paid about two bucks there. So $200 bucks. Okay, which is essentially, you know, 2 and a half, three about 3%. A little over 3%. Okay, so I'm going to collect 3% on the covered calls, but I'm also going to collect a $12 appreciation there. So, let's do the math. And obviously, results vary on this, but uh if the stock did go up to $60, okay, we're going to do $12 divided by $48, right? That's about a 25% appreciation plus an additional 3% premium. So, it's about a 27-28% return. Okay. Uh results vary there. Okay. But as you can see on the covered call side, there's a lot of um appreciation and premium to be collected. So, I typically make more on the covered call side when I do get assigned the share. So, that's exactly how we do the covered calls. Very fun. And you know, it's very kind of, you know, you just follow the wheel. You sell puts until you get assigned, then you sell covered calls, wait for the stock to come back up. It might take a month, might take three months, it might take two weeks, right? Um, for me, on average, it usually takes about a month. And once that happens, boom, now I have cash ready to go to sell more puts.
So, if you enjoyed this video, I do also have another one that I'm going to link right here which talks about LEAPS call options. This is kind of the other strategy that I put on top of this to really supercharge returns. But check that one out and I'll see you in the next tutorial. Take care.