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  1. Tim
    June 13, 2021 @ 9:46 am

    Hi, I thought for the wheel you should sell the covered calls at the same strike as the put you got assigned on. That’s how you make it back. For example, you sold puts at $300 (whatever delta that is at the time) and then it drops to $250. After that you keep selling calls at $300 until you participate in the recovery. Has my interpretation of the wheel been tested? Cheers

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    • spintwig.com
      June 14, 2021 @ 4:49 pm

      Hmm, this is different than the typical “hold-the strike” approach.

      I don’t have a hold-the-strike version of the wheel backtested. However, BigERN does a great job explaining why this would not be an optimal approach over at https://earlyretirementnow.com/2020/06/10/passive-income-through-option-writing-part-4/ (scroll to section titled “Why not just keep selling puts at the last strike at which you lost money?”).

      TLDR: holding the strike of the short put is only effective if the recovery is swift. A prolonged bear market would likely blow out an account.

      As for setting the call strike equal to the put strike that expired ITM, I speculate that should the recovery be unexpectedly strong, the call will expire ITM for a “loss.” If implementing a tasty-trade-style 45DTE strat for the short calls, the results are essentially all negative (https://spintwig.com/spy-short-call-strategy-performance/).

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