Transcription
This video is probably one of the favorites that I've ever recorded because it gives you step-by-step detail on how to run the wheel strategy, and it happens to be on one of my favorite stocks, Palantir. Now, when I originally recorded this video, Palantir was trading at $21. Oh, how I wish I could turn back time and buy even more! But you can still use this strategy on how Palantir is trading today. In fact, it may be even more lucrative for you because the IV has spiked now that it's getting a lot more attention and the price has risen. So, you will be getting a lot more when you sell covered calls on Palantir now.
So, enjoy the video! I hope it works for you. This will become a treasure for all of you because you can apply the same concept to any stock, and this is everything you need to start making a living from running the wheel like I do. If you are retired or you're considering retirement and you believe in Palantir stock, then this video could be a significant game changer. In this video, I am going to show you how to take $100,000 and, with trading Palantir stock, be able to produce $7,000 a month in income.
I know I talk a lot about Palantir here. I think it is very important that you put your money where your mouth is, quite frankly. It builds credibility, but that's easy for me because I truly believe in this stock. I think this is a generational stock, and I think I'm very fortunate to know so much about it and to invest in it. Yes, even on the days that it dips. In fact, on the days that it dips, those are some of my happiest days because I gladly add to my position and continue to average down.
What I'd like to do today is actually show you how to trade with this amount of money. If you have a portfolio like me, then putting $100,000 into one stock is considered to be okay, as long as you don't put all your eggs in one basket. So, what I'd like to do for those of you that may be considering retirement and you want Palantir to be one of the stocks that you trade, I want to show you exactly how I trade it so that you can start to produce this kind of income for yourself.
I use the wheel strategy. The wheel strategy has consistently produced income for me, and it's allowed me to grow my wealth. It's not a complicated process at all. Now, it's made to seem complicated, but my goal in life since retirement is to actually explain how to do strategies like this in a simplistic and easy-to-understand manner so that you too can get into this lucrative game.
I have had several of you email me asking me for a variety of tips and tricks with trading. Well, if you're not a part of my Discord, then you should sign up below for my free newsletter. I have put a lot of energy and effort into the emails I send to you to make sure you're updated on the latest plays and the latest ways to trade. So, if you're interested in my free newsletter, make sure you sign up below, and you'll see me in your inbox as early as next week.
So, let's go to the computer. I will show you how you would take $100,000 and use it for the Palantir wheel strategy. The first order of business that we should discuss is portfolio allocation. Now, I am of the belief that you should never put all of your eggs in one basket or all of your money in one play. A diverse portfolio will help insulate you against any one company going up or down. So, what I'm about to show you with $100,000 can scale up or down depending on the level of your portfolio.
Now that we have that out of the way, let's discuss two concepts that you will need to actually put this strategy on. One is simply called selling a put. Well, what is selling a put? When you sell a put, you are putting up the cash to purchase shares of a stock with each put that you sell. This strategy is so lucrative because instead of just going and buying 100 shares of a stock, you can actually define the level you want to purchase that stock at. If you are put the shares, then we wait until the stock recovers to its original price that we were put the shares, and then we begin selling a call against those shares.
So, what's a call? Well, I want you to envision someone calling away your shares, 100 at a time, based on each call that you sell. The best part about selling a call is you can define the price that you're willing to give up your shares to the call buyer, and as long as you are selling a call above the price where you were put the shares, you cannot lose money.
Now, there's a very important distinction here. There are two ways to play a call, and there are two ways to play a put. You can be the one that purchases the put or the call, or you can be the one that sells the put or the call. We are going to be discussing selling puts and calls, and the reason that is so important is you will win this trade 80% of the time if you are the one that is selling the put or the call. If you are the buyer of the put or the call, you're basically placing a directional trade. If you are wrong and the trade does not go in your direction, it's very hard to recover from it, and you basically lose your money.
However, if you are selling puts and calls, you can be correct in a variety of scenarios. That's what makes this so lucrative as we get into the details. I will explain more.
So, now that we've talked about portfolio allocation and now that we've discussed the basics of puts and calls, let's go look at technical analysis on this stock we're going to study, Palantir. Technical analysis is great because it shows you where a stock has been and where a stock might go next. If you are out there placing trades without some basic technical analysis, it is truly like flying an airplane with no radar. It's a recipe for disaster, and when we're talking about our portfolios, especially if you're in retirement, we need to be conservative and consistent when we are making these trades.
I encourage you to go to a site like Yahoo Finance, and once there, you need to populate your charts with a few technical analysis tools. The ones I prefer to use are a Bollinger Band, the RSI (which stands for Relative Strength Index), and then I like to populate my moving averages. The one on the Bollinger Band that I use is a 20-day moving average. I use two standard deviations on my Bollinger Band. The options when you're looking at standard deviations are one, two, or three. One might be too risky for the trades I'm going to take you through; three won't offer you enough premium. That's why I like settling in on two.
When you go into the chart to look at your stock, you have a few choices to make to determine what view makes the most sense for the trade you're about to make. I like to encourage my students, if they are going to be selling weekly puts, to go ahead and populate the one-month chart because that's going to give you a pretty good indication of the potential price action in case you have to roll a stock out a few weeks. If you're most interested in selling monthly puts, let's say you're pretty busy and you don't have time to babysit trades, monthly puts may be the perfect answer. If you're going to do that, I encourage you to consider the three-month price action on a chart. These little tips and tricks will really help you zero in on the most profitable trade you can make.
Now, when you are going to sell a put and you are trying to select a strike price, price entry is everything. One of two things will happen: one, you will select a strike price, and that strike price will not be hit by your expiration date. Well, lucky for you, you get to keep all of the money that you were putting up for that trade, plus you get to keep the premium that the put buyer paid for you to put up your money to make this trade. Outcome number two might be that on your expiration date, the stock actually settles in either at your strike price or below it. If so, then you are going to be put the shares, and you will be the proud new owner of 100 shares for every put that you sold.
If you are ever going to be put shares, price entry is everything. If you get a stock at the right price and it's low enough, you can enjoy price appreciation as it continues to rise, and also you can sell lucrative calls as the stock continues to rise. Unfortunately, if you choose the wrong strike price and it's too high, you have to wait for recovery before you can start making any money on your stock.
So, what I want to do is help you determine what is the right strike price to start with when you are wanting to sell a put. For this, I go to my Bollinger Band. When you look at the band, you will see a bottom and a top to the band. One thing you will notice is traditionally a stock likes to stay in the middle of the Bollinger Band, but as it has price action up and down—and it must because that's what makes the stock market work—you will notice that as it gets down to the bottom of the band, it starts to move back up. As it gets up to the top of the band, it starts to retreat back down.
So, knowing this information is so important because it will help you select the right strike price before you enter a stock at too high of a price. So, in this scenario, if we're going to sell monthly puts, we're looking at a three-month chart, and I see here that $19.73 is the bottom of the band. Most of the time when you go to sell options, you're going to see that they are either at an even dollar level or the 50-cent mark. Knowing this, it looks like the price of $19.50 would be a really good level to sell a put at if we are going out one month.
If you already have the shares like I do, then you want to look at the top of the Bollinger Band to determine what is the right price to sell a call. The best way to determine what price to select for your strike price is to look at the top of this band. Right now, I am seeing $23.95. Basically, what that is telling me is if Palantir gets up that high, more than likely there will be some selling pressure, and it will start to go back down. Knowing that helps me make the best selection on strike price.
So, knowing this, I might choose either $24, $24.50, or even $25 if I want it to be extra safe. Now, what will happen when we get to our expiration date? Depending on where Palantir is in price action, let's say I selected the $25 strike. Well, if we get to the end of the expiration and Palantir is below $25, lucky for me, I get to keep all of that premium, and I also get to keep my shares. Well, that's pretty cool because then I can turn around and sell covered calls on them for the following month.
But let's say that Palantir has some great news or there's information that comes out about a contract, which, quite frankly, often does happen with this stock, and then it starts running. If we get to the end of the expiration day and Palantir is about $26, I have agreed to let my shares go for $25, so I am leaving a little bit of money on the table. But remember, I was put the shares much lower; that ensures that I don't lose money on the trade. It's really just missed opportunity at this point.
One other option, if you find yourself in this scenario, is potentially rolling a trade. Now, I have videos on rolling a trade, and I will save all of those fun details for a different video, but do know that that is a real option that a lot of traders take advantage of.
The next thing we want to do is actually go into an option chain so that we can look at what kind of money we may get if we're selling a put and what kind of money can we get if we already have the shares and we're going to sell a call because that figure is going to be what produces the income that, in retirement, you would actually be living off of. This particular brokerage account is called Tradier, and the reason I like to use this on my videos is the layout is very easy to read and easy to understand, so it helps when I'm teaching. But there's a variety of brokers that you can use. I actually have six, and I encourage you to have as many as possible because a broker can go down at any given point, and if you're ready to get into a trade and you don't have access to the trade because of an issue with the broker, that can be very frustrating, and it can cost you good money.
If I am working on the one-month time frame, what I'm going to do is I'm going to look at the following month, and if you are selling monthly options, I encourage you to always look at the third Friday of any given month. That is going to be when all the institutions are making their trades, and you will have much more clarity on the strike prices that everyone is looking at. Based on where we are at the time I'm filming this video, I am going to select June the 2nd, but you would always just want to go to the following month and select that third Friday.
Going to the option chain, I want to first start at that $19 and $20 level because remember the bottom of that Bollinger band was about $19.50 to $20, so that's a perfect place to start when I'm looking for a trade. Once I go to the option chain, I start looking at all of the different metrics on here. The one I want you to focus on right now is called the Delta, and the Delta is basically showing you how much the option that you're about to sell will change in price with every $1 price movement of the stock.
So, when we're looking right here at the $19 price level, it is offering 21 cents per share in premium to put this trade on. Well, if Palantir is to go up a dollar from the time that I place this trade, then what the Delta is showing me is that this particular option, even though I sold it for 21 cents, it will start to go down by 16 cents every dollar Palantir moves up. Well, the opposite is true if Palantir starts to go down.
Now, if I sell it for 21 cents and I collect 21 cents, but Palantir continues to decline from where we are at the point that I sold this, then what you're going to see is every dollar that Palantir goes down, then this 21 cents will have another 16 cents added to it. So, if you're looking at this after you've made the trade, if Palantir continues to go down, it's going to appear that you're losing this trade because you only got 21 cents for it. But had you waited until Palantir retreated another dollar, you would have received your 21 cents plus the 16 cents.
But one thing is for certain: you will see this oscillate up and down up until your expiration date. But as long as the price settles in above your strike, eventually as you get closer to the end of your expiration, you will see this start to whittle down to zero. So, you sold it for 21 cents, but as time moves on and we get closer to the expiration date and you're still not at $19, this will eventually whittle away to zero, which is good because that means you keep all 21 cents per share.
When I am selecting a Delta, there are a few rules of thumb that I like to follow. If I'm interested in holding more shares of the stock and I'm not just interested in premium, then I will look at a Delta of 0.2 to 0.3. If my goal is to just collect premium and I really don't need any more of the stock, then I will try to find a Delta that is below 0.2. The reason the Delta is important is it gives us the percentage chance that the price will settle in at that strike price.
So, right here when we're looking at the $20 level on this stock, there is a 23, almost 24% chance that by our expiration date, 6/21, Palantir settles in right here at $20. So, obviously understanding this, the lower you go in Delta, the more conservative and the safer the trade is. But if you go too low, you're giving up too much premium. Like right here, if you go to 0.10, well sure, there's only a 10% chance that Palantir is going to end up at the $18 level by this date, but look, you're only receiving 10 cents.
Go up by $1, you end up having a 16% chance that Palantir will settle in at this price, but you've doubled your premium, and you're getting 21 cents per share. Now, if you want to be a little bit more aggressive and have a much better chance of having the shares put to you, you'd want to go even higher. Look in here at 35 Delta; it gives you about a 35-36% chance that you will get this stock at $21, but look, you'll be getting 73 cents per share.
So, even though you zeroed in on $21, you have to consider once you get the premium, this is really lowering your price to get the stock down by 73. Now, for the purpose of cost basis, I leave this out of the calculation because I'm a little greedy. I want to keep my 73 cents, but I also want to enjoy stock appreciation. So, for the purposes of trying to decide when to sell calls, I typically use the price of assignment as my starting point, not taking into consideration the premium I received because this is just going to go into my brokerage account, and I will use it for other trades.
So, let's assume for the purpose of this video that we've selected $20 as our strike price. We will be receiving 40 cents per share. So, knowing that, let's start to calculate some of the income that we can produce with this strategy. For this example, we are assuming that we are dedicating $100,000 to the stock on Palantir. Well, for my example, I am going to just split it down the middle. I'm going to dedicate $50,000 to selling puts, and then in my second scenario that we'll go through, I am going to reserve $50,000 for purchasing the shares so that I can then go sell covered calls against them.
If I have $50,000 to sell puts on Palantir, that allows me the opportunity to purchase 2,500 shares at the $20 strike price. 2,500 shares is going to represent 25 contracts, but for the purposes of better understanding the amount of premium, what you would want to do is take that and multiply it by 2,500. That's going to equal $1,000, so your $50,000 just produced a monthly income of $1,000 based on selling the $20 put on Palantir.
Let's move to the second part of the trade. Assuming that you already have Palantir stock in your broker or you've been running the wheel strategy and you've been put the shares, we are going to assume that at this point you have $50,000 of Palantir, and we will go ahead and assume that you got it at about the $20 level. That calculates out to be 2,500 shares of Palantir.
So, if you have 2,500 shares of Palantir, now let's go look at selling calls against our shares. For this, we want to go back to the Bollinger Band to take a look at where we might consider selling calls. Looking up here, $23.95 is the top of that band, so $24 might be the very first strike price I consider. Something else that's really important to note: you should only sell calls on days that a stock is green, and you should sell puts on a day that a stock is red. The reason is you will get more premium for the calls on a green day for a stock, and you will get more premium to sell a put on a red day for a stock.
Going to our option chain, let's start at the $24 level because that was the top of the Bollinger Band. The Delta serves the same purpose on this chain on the call side as it did on the put side. This is actually a really good Delta at 24. This is telling you that there's about a 24% chance that on our expiration date, 6/21, Palantir settles in at the $24 level. Each call that we sell is going to yield us 41 cents in premium, so it's very similar to what we saw on the put side.
So, for the simple math method, let's assume that we will receive another $1,000 for selling 25 calls against our shares. That equates to 2,500 * 0.41, so now we're at $2,000 off of our $100,000. But I haven't even shared the best part with you. This is where the real money kicks in. If you had purchased your shares at the $20 level, now we get to account for stock appreciation. In this scenario, you would assume that you had 2,500 shares, you had gotten them for $20, and now they're called away because on your date of expiration, let's assume in this scenario that Palantir settles in above the $24 level. If so, your shares will be called away, and you will be paid cash at $24 a share.
Well, that's pretty cool because if you bought them at $20 a share, now that is another $4 a share that you're getting to enjoy in price appreciation. This is why you cannot lose money on selling calls as long as those shares are called away above the price that you paid for your stock. Now, this is where the fun comes in. Looking at the math this way, you have just achieved producing $10,000 in stock appreciation because you take $4 multiplied by 2,500, that's $10,000.
So now you have created $12,000 in income for you in one given month. Now, I know there's no guarantee that the stock is going to oscillate up and down and you'll have perfect entries and you'll be able to get $4 stock appreciation every month, but for the sake of trying to put together some figures, let's assume that you get half of that. A $2 price movement is not unusual in a stock like Palantir, considering that that makes it at least $5,000 on stock appreciation that you can enjoy.
The only thing that would derail you in that scenario is if, for some unforeseen reason, Palantir just continues to slide backwards and you just can't sell covered calls and you just have to wait. Then, in that scenario, I would have some money put to the side. You would be able to enjoy the income that you're creating from your other cash by selling puts or if you have other stocks that you're selling calls against.
Right now, we're looking at $1,000 on the put side for selling puts, $11,000 on the call side for selling calls, and both of those are pretty consistent. You should be able to generate about that on each of those particular plays consistently every month. Let's assume we're having a mediocre month in stock appreciation, and instead of $10,000 like we experienced, we actually get $5,000 from having our shares called away. At this point in the calculation, we're at about $7,000 in income that's been created in one given month. Amazing, right?
Well, I know this works. My Discord members are having this kind of success with their own portfolios, and I, of course, am enjoying similar success. I just had a Discord member share some really good news with me this week. He's only been with me since mid-January, and he's already produced $100,000 in income based on the different plays that I offer in Discord every week. But what has really helped him is I'm not just giving out plays; I actually help mentor and teach all my students how to do this for themselves so that they can think for themselves and make their own trades based on their personal preferences and their personal financial needs.
If you are at the point of retirement and you're interested in being part of an active investment community with like-minded individuals, go ahead and click that link below. We'll set up a very brief call where we'll show you our Discord community full of investors, and you can decide if it's right for you. If you like this video, make sure to subscribe so that you can be updated on all the tutorials that I put out. They're all free to you, and I would love for you to learn how to trade like this.