Options Wheel Strategy – A Live Experiment

I’ve been dabbling with trying the options “wheel” strategy for a while. There’s been a lot going on with our good old Hertz Car Rental (ticker: HTZ) lately sadly being at the brink of bankruptcy. Implied volatility on some of its options has been as high as 700% in recent days, and cost per share has hovered around $3.00 area. Taking all of this into account, for me this stock makes a really good candidate to try out the wheel strategy for the first time with relatively low risk. My biggest risk here is that if they announce bankruptcy one of these days and share price goes to $0, I may end up losing a few hundred dollars, depending on which side of the trade I happen to be on at that time.

Note: I have no idea what I’m doing and I do not recommend you try any of the trades you read about on my website. This is not investment advice and rather purely for entertainment and informational purposes.

Trade Timeline:

This will be updated regularly as I progress through the strategy on this trade.

Monday, 05/04/20

Sell 1 HTZ May 08 ’20 $3.50 Put Executed @ $0.95

HTZ May 08 ’20 $3.50 Short Put

Since I’m purposely trying to get assigned here, I chose an almost at-the-money strike price of $3.50. The stock was hovering around $3.60 at the time, so this was the best premium I could get without being in the money. Though I’ve dabbled with selling options a little bit a couple of years ago, this is really my first time experiencing receiving “juicy” premium. I mean, $95 on a $3.xx stock is just crazy. Even if this expires in the money and I get assigned, my cost basis will be reduced by almost $1/share. Let’s see what happens next!

Friday, 05/08/20

This week I got to see IV crush and theta-decay in action from an option-seller’s perspective, and it was sweet (makes me want to never buy options again). Even though the stock was trending down and my short put went in the money, the value of the option just kept declining due to a reduction in IV (implied volatility) and theta-decay. I had various opportunities throughout the week, including on day of expiration, to close this position for close to 80% profit. However, since I’m purposely trying to get assigned here, I kept the position open to see how the logistics of the wheel process look look. I’ve never been assigned an option before so I am curious to see how this will look in my brokerage account.

This HTZ May 08 ’20 $3.50 Put (short) expired ITM (in-the-money) by 0.23, with the stock closing at $3.27 on expiration. As of Friday evening, nothing has happened in my brokerage account yet (E*TRADE), so I am curious to see when assignment happens and what it looks like.

Saturday, 05/09/20
1 HTZ May 08 ’20 $3.50 Put Assigned

This morning, this alert showed up in my account, along with 100 shares of HTZ now showing in my portfolio:

HTZ share assignment screenshot

As you can see, the cost basis is listed at $2.55/share, which is accounting for the $95 premium received on Monday. So far in this trade, I’ve gotten paid $95 to buy 100 shares of HTZ, lowering my cost basis to well below market price. I’m also already over 70% in gains on these shares, should I choose to just sell them at the current price without doing anything else. Of course, HTZ could tank by market open on Monday, so we’ll see how that goes. Overall, good deal so far.

I will hold the shares and now look to see what expiration & strike looks good to sell covered calls on this.

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