The Options Wheel is a systematic, iterative crypto options trading strategy designed to generate consistent income through a sequence of selling cash-secured put options and covered call options on a single underlying digital asset. Its primary purpose is to collect option premiums while either acquiring the underlying asset at a lower price or selling it at a higher price, thereby optimizing entry and exit points within a defined risk framework. This strategy is suitable for assets where an investor is comfortable holding or acquiring the underlying.
Mechanism
The mechanism commences with selling an out-of-the-money cash-secured put option. If the put expires worthless, the premium is retained, and another put is sold. If the put is exercised, the investor acquires the underlying cryptocurrency. Subsequently, the investor sells an out-of-the-money covered call option against the newly acquired or existing underlying asset. If the call expires worthless, the premium is retained, and another call is sold. If the call is exercised, the underlying asset is sold, and the cycle potentially restarts by selling a put.
Methodology
The strategic methodology involves disciplined execution and active management of strike prices and expiration dates, often leveraging institutional options trading platforms and RFQ systems for efficient order placement. It balances income generation with directional exposure, making it an income strategy that aims to profit from time decay (theta) while managing potential assignment. This approach requires a strong understanding of the underlying crypto asset’s volatility and price action, optimizing premium collection and asset management through systematic option selling.
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