Thanks for the reply THornsby. You have echoed a lot of my concerns. I think this strategy itself is actually pretty good at being prepared for significant market movement, and it can withstand around a 20% drop in an underlying over a couple weeks. So, it's really these rare events that one cannot anticipate that screws everything up. I am concerned about this every day, FWIW.
My goal is fairly consistent monthly, or weekly, income. I don't care that its the strategy I outlined or some other hedged or even a directionless strategy. I have spent a great deal of time on spreads (diagonals in particular) and condors/butterflys. I think I will incorporate some of this but have been spending a lot of study time. The reason I ended up doing the 'wheel' was I came across a few posts that really changed my thinking wrt. options and especially assignment. Once I realized that it didn't matter if I was assigned or not, I just simply decided to try it and see what happened. See what the mechanics delivered. They did well, but we've been in a bull run.
I've worked this fairly well in volatile times, but always seemed to come away feeling lucky rather than skillful.
One of the real tough things I have about the hedged strategies is the fact that the 20% Probability of loss tends to wipe out the 80% probability of gain and the long term expected outcome is usually zero or less. So, the only way to make money is to be directional.
Or, in the original case, don't take the loss and run the dice. LOL.
Thanks again. I hope this thread gets a few more posters in the coming weeks. |
