The wheel strategy is one of the best strategies to use. You can produce steady and predictable returns if you use the wheel strategy properly. We are talking 25-30% annualized returns by using this strategy properly! All you need to do is find the best stocks for the wheel strategy.
Okay, you already know how to use the wheel strategy. So now you’re probably wondering how to find the best stocks for the wheel strategy. I will show you what you need to do to find the best stocks to wheel.
All you need to do is follow the simple steps on this page and you will be able to find your wheel candidates.
Here’s a brief overview of the things you’ll need to do to find the best stocks to wheel:
- Search for volatility
- Look at the stock’s fundamentals
- Use technical analysis
- Be aware of market conditions
Search For Volatility
When looking for the best stocks for the wheel strategy, your first step is to find volatile stocks. Volatility is necessary, otherwise the wheel strategy will not reward you well.
Keep in mind that the wheel strategy is a bullish strategy. So you need to look for bullish companies with high implied volatility.
I recommend going to a website such as Barchart and doing a search for the stocks with the highest implied volatility levels. From there you can begin looking through each of the stocks and begin grooming for the best wheel candidates.
You can quickly look through the list and cross off the bad eggs by looking at their 5-year charts. If the 5-year chart reflects a steady uptrend, then you know you can add it to your list of potential candidates.
After you have done this, it’s time for you to move on and dig into each stock. Let’s move on to the researching stage.
Use Fundamentals To Find The Best Stocks For The Wheel Strategy
You need to make sure that you are looking for stocks with strong fundamentals. There is no way than you can find the best stocks for the wheel strategy if you can’t tell whether the stock is bullish or bearish.
Yes, that means you have to do your homework on the company. You can’t go all willy nilly throwing your money into cash secured puts for companies that you know nothing about. If you follow the simple steps I am about to give you, you will have no problem finding the best stocks to wheel.
Understanding Your Stock Is A Must
No sane person should be playing around with stocks that they know nothing about. In order to find the best stocks for the wheel strategy, you need to find good, strong companies.
You don’t need to be a rocket scientist to figure this stuff out….. We will be talking about the basics here.
Here’s what you do:
Browse through the most recent SEC filings, press-releases, and earnings reports to get an idea of the current state of the stock. After doing so, you should have a pretty good idea on whether or not they are growing, stalling, or beginning to bleed out.
More specifically, every quarter’s earnings reports give you key information on where the stock may be heading. For example, if after doing all of your research, it seems like the company is going to be growing at a fast rate, you can consider an aggressive put selling strategy. You might consider selling slightly in-the-money puts.
Although fundamentals of a stock are crucial for finding the best stocks for the wheel strategy, you also need to focus on overall market sentiment.
You Need To Be Aware Of Market Conditions
Haven’t you ever heard that “anyone can make money in a bull market”? It’s kind of true. Almost any fundamentally sound stock will gradually increase during a bull market. But what happens when sentiment changes? That’s where things start to get tricky.
Just look back to the financial crisis of 2008. There you will see that there were almost no stocks that were strong enough to fight the market sell off. Everything from small-cap to large-cap stocks were crushed. Moments like this are very important to learn from when playing around in the stock market.
When market sentiment is changing, you should be looking to change you level of aggressiveness. Chances are, your stock will end up moving in the same direction as the overall market. Therefore, you need to constantly be trying to get a feel for overall market sentiment so you don’t get stuck bag-holding.
For example, if it seems like a bullish market is starting to become less bullish, consider holding off on using the wheel strategy. Another option would be to sacrifice some profits and sell a far out-of-the-money put.
Using Technicals To Find The Best Stocks For The Wheel Strategy
I don’t care if you’re a fundamental trader who does not believe in technical analysis- you’re going to need to use technical analysis to find the best stocks for the wheel strategy.
I’m not going to tell you that you need to learn and use all practices of technical analysis, but you are definitely going to need the basics. When I say basics, I really mean basics. You will not need to know anything more than how to find support and resistance levels.
The best stocks for the wheel strategy should be near support levels or just breaking resistance levels. Stocks that are near support levels or have just broken resistance levels tend to stay above them. These are usually good spots to begin wheeling.
So when you’re looking through your list of wheel candidates, it is a good idea to try to map out support and resistance levels around the current price action. I would really consider wheeling those that are close to key levels.
When It’s All Said And Done
Now that you have your list of the best stocks for the wheel strategy, all there is left to do is implement it. Go ahead and get your cash secured puts and get that wheel spinning!
Just remember this- you have to keep up to date with the overall market and the fundamentals of the stock you are wheeling. As the overall market and fundamentals shift, the technical levels of the stock will change as well. So never stop doing your homework on your stocks.
While the wheel is spinning, you’ll come to realize why selling options is the best form of passive income!
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Did you like this post? How do you find the best stocks for the wheel strategy? What do you find to be best? What stocks do you wheel? Make sure to let me know!