Income options traders sometimes have stock and ETF puts assigned after the stock falls below the puts strike price. Then they do the wheel. They sell covered calls on the equity to recover the loss.
Hi,I've been trading the wheel for about a year now and could be doing so either correctly or incorrectly in regards to stocks I've sold puts on that ended up deep ITM, as the stock price has tanked. Obviously for those names, you'd have to sell a covered call at a strike price significantly lower than the original strike the put was assigned at. Otherwise you wouldn't earn any premium.
For these sorts of names how you you handle assignment. Using your DIA example, if your original assigned strike was $354, and you were selling covered calls after assignment but then the underlying stock dropped to something like $250. Would you shift your subsequent covered call strikes to something like 260 or 270 and just start selling puts again if got assigned out of those calls?
Curious as I'm trying to figure this out. Somehow all the material I've read so far never addresses this specific issue.
Hi,I've been trading the wheel for about a year now and could be doing so either correctly or incorrectly in regards to stocks I've sold puts on that ended up deep ITM, as the stock price has tanked. Obviously for those names, you'd have to sell a covered call at a strike price significantly lower than the original strike the put was assigned at. Otherwise you wouldn't earn any premium.
For these sorts of names how you you handle assignment. Using your DIA example, if your original assigned strike was $354, and you were selling covered calls after assignment but then the underlying stock dropped to something like $250. Would you shift your subsequent covered call strikes to something like 260 or 270 and just start selling puts again if got assigned out of those calls?
Curious as I'm trying to figure this out. Somehow all the material I've read so far never addresses this specific issue.