← BeginnerLesson 25 · 6:00
The wheel: what happens when it goes wrong? (strategy)
Summary
You can set the wheel's premium income beside its share loss and see which is bigger. You can explain how selling a call with a strike below your cost can lock in a loss, and weigh a low strike against a high one. You can work out how long small premiums would take to earn back a share loss, and what the tied-up money costs you in time.
Key terms
- premium income beside share loss
- locking in a loss
- Turning a loss on paper into a real one, for example when shares bought at $95 are called away at $75.
- strike below your cost
- money tied up
Check yourself
Answer each question to see why the right answer is right.
1. You hold shares bought at $95, and XYZ is now at $70. Why doesn't selling a call with a strike of $95 help?
2. XYZ stays at $70, and you sell the $75 call for six months; it runs out worthless every time. With the earlier $234, where are you after eight months?
3. XYZ bounces to $80 in the sixth month and your shares are called away at $75. Where are you?
4. At the bottom, what is the trade-off between a low strike and a high strike?
5. To earn back the remaining $2,266 of share loss with $75 calls at $75 a month, how long would it take?
Finished the video and the quiz? .