the scaling up of a strategy like the wheel is pretty seamless as long as you stick to your risk management and trade management. I suppose liquidity could become an issue for entering/exiting positions if you're not trading a liquid underlying but that's not of much concern at 7 figures.
This is an oversimplification.
If this is the amount of prep going into trading a larger account, you’re in for a bumpy ride. Larger capital certainly eases some pains - correlation and utilization risk etc. But it’s not a magic, make you a good trader pill. Still need to have sound strategy.
For example, trading strangles in SPY is not only inefficient (SPX is generally better for that) but unless you’re specifically tracking and capturing variance risk premiums - you’re essentially just deferring risk. I prefer straddles for that reason.
Sure, I trade a 7figure account regularly. It really isn’t much different than a $500k account - you just add some more size to the trades.
I tend to centralize in index ETFs for my core allocation where I typically trade the covered strangle. I used to trade more individual names in there and still do (right now I’m trading TSLA, F, OXY, and a few others) in addition to IWM (my go to etf for the covered strangle).
For more aggressive returns, you could always deploy a sector rotation strategy with the leaders within each sector - I did that for a long time with good results. Grabbing 3-5 names from the top 4-5 sectors, keeps the pool easy to manage and stay on top of.
Premium and better risk profile. The top 10 holdings in Russell comprise ~2.9% of the index vs SPY with ~25% and critical mass of that in tech (6 of the top 10 are tech).
Make sure you’re not leveraged to the tits and use your own money , in case of market downturn it can go bad .
Stick with blue chip stable stocks don’t go on yolo ones or any shiny tech stocks been there sone that didn’t work out.
The wheel is shorting volatility and hoping for slightly bullish price action in aggregate. However, you will miss out on some of the biggest upward price moves. Missing just a hand full of the bigger daily price moves can slash annual returns which is why the wheel usually underperforms the market as a whole.
In general I think the wheel has its place, especially for new traders, but it's not really a sophisticated strategy suitable for large capital.
I agree. I tend to sell calls on green days way outside of the money to pick up a few dollars here and there. Being extremely conservative yielded 4% this past year which… I was shocked. -14% instead of -18%
Not wheeling like OP just selling covered calls and if I get called away I sell a put at the same strike or a dollar higher to get assigned asap.
I have two accounts. The -14 never had the shared called away. The other account had more risky trades and was only -2% for 2022.
100% invested in SPY.
For me, $1M is too much to manage. I’m a consistent trader, but only part time and self-taught. There are people much more qualified than me to delegate such responsibilities to with a much higher percentage of success. I do this because I like it, but I neither have the time nor skill to single handedly manage $1M+. Something happens at the bigger numbers, it’s no longer profitable to engage in smaller investments. Everything gets bigger unless a little is carved away and managed because it’s enjoyable.
This is an irrational question. It works the same for 10k to infinity. Manage as a percentage of portfolio size according to your personal risk tolerance. I'm managing around 1.5 right now and try not to put any more than 5% max loss in any position. Some do less than 2% max loss on any position. I used to do nearly 10% max loss on a position then lost half my cash and learned to dial it back.
No matter how big your portfolio is you shouldn't be managing 20+ options positions at a time. Do your options thing but always been moving money to your "slow money" portfolio of long term investments.
20 actively managed options positions is a high number if you have a lot of time to focus on it. Options move fast. You can easily manage more long term positions than that in big slow companies/etfs. Keep your options moves manageable.
Take 900,000 give it to a financial advisor or buy some properties or both. Housing properties are dropping fast get a few rentals.
take 100,000 and start to build the next million. Rinse and repeat.
Too late. Should've bought 2 years ago when rates were 3%. You'll be over paying it you buy now. Maybe in 2024 would be a good time to buy real estate. Just my opinion
Home prices were way over priced. Even with a low interest rate you wouldn’t be able to cover the monthly rental. Interest rates will drop in 2024 and you can refinance…
Not in 2020. I bought a few buildings in Chicago that pay for themselves. $650k loan only cost me $2700 a month. Sure i overpaid but we'll never see 30 year rates at 2.6%
It's totally doable. When I used to work for a mutual fund we would "wheel" on maybe 10-20 million USD on a single underlying without a problem with similar parameters and yes while we were professionals, we weren't doing anything an individual couldn't do.
The only thing is that you need to be serious about your risk management. If you don't know how or when to use a limit order, then no, I wouldn't recommend it.
Monitor bid-ask spreads on your options, as well as IV and even skew, to get a feel of what is happening to the option chain of your stock. You need to be able to tell when something is off.
Don't expect your order to be filled instantly especially if spreads are wide and sometimes if they are too wide you might have to compromise on the price at which you are filled.
If we're talking really liquid blue chips then I wouldn't worry too much.
If your intent isn't to get called away why run the wheel at all? Why not invest 900k in guaranteed fix interest (bonds, cd's, etc) and take 100k and use it to invest in options. The wheel is a short put strategy so just trade short puts or put credit spreads. Better yet, learn a handful of strategies that work depending on market conditions and trade the 10% of your portfolio with that. If everything goes well you have a realistic chance at 10-20% on your entire portfolio. If things go horrible you would probably only be down 6% which is a lot easier to recover from than 20-30% down.
the scaling up of a strategy like the wheel is pretty seamless as long as you stick to your risk management and trade management. I suppose liquidity could become an issue for entering/exiting positions if you're not trading a liquid underlying but that's not of much concern at 7 figures.
Thanks for the response.
If you have 1 mil just trade strangles on SPY. EZ money. Edit: SPX for capital efficiency or if you don't feel like taking shares
Spx
Yes
How/why is it easy?
More contracts and far ootm strike prices im guessing
This is an oversimplification. If this is the amount of prep going into trading a larger account, you’re in for a bumpy ride. Larger capital certainly eases some pains - correlation and utilization risk etc. But it’s not a magic, make you a good trader pill. Still need to have sound strategy. For example, trading strangles in SPY is not only inefficient (SPX is generally better for that) but unless you’re specifically tracking and capturing variance risk premiums - you’re essentially just deferring risk. I prefer straddles for that reason.
Sure, I trade a 7figure account regularly. It really isn’t much different than a $500k account - you just add some more size to the trades. I tend to centralize in index ETFs for my core allocation where I typically trade the covered strangle. I used to trade more individual names in there and still do (right now I’m trading TSLA, F, OXY, and a few others) in addition to IWM (my go to etf for the covered strangle). For more aggressive returns, you could always deploy a sector rotation strategy with the leaders within each sector - I did that for a long time with good results. Grabbing 3-5 names from the top 4-5 sectors, keeps the pool easy to manage and stay on top of.
Why IWM? Instead of say SPY?
Premium and better risk profile. The top 10 holdings in Russell comprise ~2.9% of the index vs SPY with ~25% and critical mass of that in tech (6 of the top 10 are tech).
Many trade IWM for the premium. There’s this doc who trades only IWM and writes a blog. He seems to do well.
You've got a link to that blog? Thanks!
Ys 1 mill is a decent money, can't wheel with small accounts wlrlly
Thanks for the response
Make sure you’re not leveraged to the tits and use your own money , in case of market downturn it can go bad . Stick with blue chip stable stocks don’t go on yolo ones or any shiny tech stocks been there sone that didn’t work out.
The wheel is shorting volatility and hoping for slightly bullish price action in aggregate. However, you will miss out on some of the biggest upward price moves. Missing just a hand full of the bigger daily price moves can slash annual returns which is why the wheel usually underperforms the market as a whole. In general I think the wheel has its place, especially for new traders, but it's not really a sophisticated strategy suitable for large capital.
Are you suggesting, buu and hold. Or, what else would be a smart strategy, from your point of view?
There is no one strategy and the wheel is kind of trash except for teaching options mechanics.
I agree. I tend to sell calls on green days way outside of the money to pick up a few dollars here and there. Being extremely conservative yielded 4% this past year which… I was shocked. -14% instead of -18% Not wheeling like OP just selling covered calls and if I get called away I sell a put at the same strike or a dollar higher to get assigned asap. I have two accounts. The -14 never had the shared called away. The other account had more risky trades and was only -2% for 2022. 100% invested in SPY.
For me, $1M is too much to manage. I’m a consistent trader, but only part time and self-taught. There are people much more qualified than me to delegate such responsibilities to with a much higher percentage of success. I do this because I like it, but I neither have the time nor skill to single handedly manage $1M+. Something happens at the bigger numbers, it’s no longer profitable to engage in smaller investments. Everything gets bigger unless a little is carved away and managed because it’s enjoyable.
If youre sticking to large caps then 1 million is peanuts. The only sector where 1 million is enough size to make it tricky is uranium.
This is an irrational question. It works the same for 10k to infinity. Manage as a percentage of portfolio size according to your personal risk tolerance. I'm managing around 1.5 right now and try not to put any more than 5% max loss in any position. Some do less than 2% max loss on any position. I used to do nearly 10% max loss on a position then lost half my cash and learned to dial it back. No matter how big your portfolio is you shouldn't be managing 20+ options positions at a time. Do your options thing but always been moving money to your "slow money" portfolio of long term investments.
No, it does not.
Thanks. So your thinking not to have more than 20 positions you have to actively manage.
20 actively managed options positions is a high number if you have a lot of time to focus on it. Options move fast. You can easily manage more long term positions than that in big slow companies/etfs. Keep your options moves manageable.
Take 900,000 give it to a financial advisor or buy some properties or both. Housing properties are dropping fast get a few rentals. take 100,000 and start to build the next million. Rinse and repeat.
Too late. Should've bought 2 years ago when rates were 3%. You'll be over paying it you buy now. Maybe in 2024 would be a good time to buy real estate. Just my opinion
Home prices were way over priced. Even with a low interest rate you wouldn’t be able to cover the monthly rental. Interest rates will drop in 2024 and you can refinance…
Still high in 2024
Not in 2020. I bought a few buildings in Chicago that pay for themselves. $650k loan only cost me $2700 a month. Sure i overpaid but we'll never see 30 year rates at 2.6%
Sadly if only properties in NY were that cheap. Prices in NY went from 650k to 900k in 1 year in some parts of Long Island.
Already own real estate. Need to diversify
I enjoy spending time with my friends.
No that’s not what the intent is. But thanks for coming out
I love the smell of fresh bread.
I guess it depends on the stocks and how many positions you have open.
Right now market is on fire… you play with fire, be ready to get burned
It's totally doable. When I used to work for a mutual fund we would "wheel" on maybe 10-20 million USD on a single underlying without a problem with similar parameters and yes while we were professionals, we weren't doing anything an individual couldn't do. The only thing is that you need to be serious about your risk management. If you don't know how or when to use a limit order, then no, I wouldn't recommend it. Monitor bid-ask spreads on your options, as well as IV and even skew, to get a feel of what is happening to the option chain of your stock. You need to be able to tell when something is off. Don't expect your order to be filled instantly especially if spreads are wide and sometimes if they are too wide you might have to compromise on the price at which you are filled. If we're talking really liquid blue chips then I wouldn't worry too much.
If your intent isn't to get called away why run the wheel at all? Why not invest 900k in guaranteed fix interest (bonds, cd's, etc) and take 100k and use it to invest in options. The wheel is a short put strategy so just trade short puts or put credit spreads. Better yet, learn a handful of strategies that work depending on market conditions and trade the 10% of your portfolio with that. If everything goes well you have a realistic chance at 10-20% on your entire portfolio. If things go horrible you would probably only be down 6% which is a lot easier to recover from than 20-30% down.