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First we’ll give you the strategy so you can implement it quickly within your portfolio. If you have questions, need help or aren’t sure how to implement the strategy correctly every month within your portfolio there is an option at the end to contact us for Private 1 on 1 portfolio consulting.

S&P 500 Wheel+Strangle Combination

The strategy utilizes just 1 ticker: SPY

SPY is an S&P 500 ETF or exchange traded fund that tracks the S&P 500. It’s liquid, highly traded and should easily serve your needs up to a $200 Million dollar portfolio.

Here’s the short version then a more detailed breakdown breakdown.

Step 1: Sell a cash secured put on SPY 30 days until expiration.

Step 2: If assigned after 30 days, sell a covered strangle, both an OTM put and call 30 days until expiration.

Step 3: Either the shares were called away or now you have 200 shares after another assignment. Sell 2 covered calls against your shares until they are called away. Congrats, you just crushed the S&P 500 9-10% yearly average returns.

Here’s a more detailed breakdown of each step:

Step 1: Sell 1 cash secured naked put on spy expiring in 30 days. We Choose around the .25 Delta or 72% probability OTM put. We are looking to get assigned if SPY drops and if it doesn’t we’ll collect around $472 in premium. For a $90,000 account you will sell 1 contract and collect $472 on a $9,000,000 account you will sell 100 contracts and collect $47,200.

Step 2: You’ll either collect and keep the premium if SPY does not close at or below your strike or get assigned the 100 shares at expiration at your strike in this case $380 if SPY Falls at or below your strike. If you are not assigned the shares, repeat step 1. In this case you are collecting money (option premium) without even owning spy yet.

Step 3: You are assigned, sell a strangle (1 more put and 1 covered call) expiring in 30 days from now around the .30 delta. Make sure you are collecting at least $1,200 on the strangle minimum. You are looking for at least a 1.4% Return on Capital minimum. For a $90,000 account you will sell 1 OTM put and 1 OTM call and collect $1,200 or more and on a $9,000,000 account you will sell 100 contracts of each (the OTM put and call) and collect $120,000 or more in premium. In this case SPY does not even have to go up and you are still collecting money (option premium.) If you owned 100 shares of spy normally and it sat flat without selling the strangle you would not be earning anything.

Step 4: If SPY drops further during your covered strangle and you are assigned another 100 shares at expiration then sell 2 covered calls against your shares expiring in 30 days. If the shares don’t rise you’ll collect all of the premium from selling the covered calls, if they do rise over the strike and get called away after appreciating significantly you will repeat step 1 and start the method over again.

Congrats! You are crushing traditional S&P 500 returns! On an $90,000 portfolio in a  given year you can only expect around a 9% return on Average. In this case around $8,100 assuming SPY even ends the year green and returns 9%

If you have $180,000 or more in your portfolio you can add DIA in congruence with SPY to disperse your risk. Just add 1 contract of DIA in every instance SPY is mentioned.

It scales in a linear manner i.e

$90,000 portfolio is 1 contract for each leg and step of the trade

$180,000 portfolio is 2 contracts or 1 SPY and 1 DIA contract.

$1,800,000 portfolio is 20 contracts  or 10 SPY and 10 DIA etc. 

You can utilize that framework up to $200 Million, at which point liquidity may become a concern for entering and exiting trades. 

There are several good scenarios in this strategy, one of the best being your shares of spy appreciating while you are selling the covered strangles monthly and subsequently earning the gains of spy and also collecting ALL of the option premium in tandem while you move your strangle strikes up each month if the shares are not called away. In which case you earn the 9% annual return on spy as well as the 1.4% each month from the strangle, reaching a mind bending 25%+ return. Not bad for 2 minutes a month.