The Put Wheel Strategy is a multi-stage options trading strategy designed to generate income through selling cash-secured put options and, if assigned, selling covered call options, with the objective of acquiring an underlying asset at a discount or generating consistent option premiums. In crypto options trading, this strategy can be applied to volatile digital assets to systematically acquire them or earn yield.
Mechanism
The mechanism begins with selling an out-of-the-money cash-secured put option on a crypto asset the investor desires to own. If the asset’s price falls below the put’s strike price by expiration, the investor is assigned the asset. Subsequently, the investor sells covered call options against the newly acquired crypto asset. If the asset rises above the call’s strike price, it is sold at a profit; otherwise, the investor continues selling covered calls, collecting premiums.
Methodology
The methodology prioritizes income generation and opportunistic asset acquisition within a defined risk framework. It requires careful selection of underlying crypto assets with strong fundamental value and a willingness to own the asset if assigned. Institutional traders apply this strategy to generate yield on stablecoins or major cryptocurrencies, managing risk through strike price selection, expiration timing, and position sizing. This systematic approach leverages market volatility to either acquire assets at favorable prices or collect consistent premiums, fitting within a broader smart trading or institutional options trading framework.
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