17 August 2020

Running "The Wheel" on GE Stock, Building a Long Position

For a while now I've been using "The Wheel" to generate cash flow on $650 "chunks" of capital with options on GE stock. 

The Wheel, explained:


I've been in and out of the stock by this method with weekly contracts, and as of now I've achieved a cost basis of $5.32/share, with the contract premiums collected averaging out to a 68.6% annual "yield" on each $650 chunk that has been backing the contracts I've been writing. 

Big attraction for me here: I could do this from anywhere in the world that I have access to the Internet; location-independent income. 

I've been doing this while GE is essentially range bound between $6 and $7, but I don't expect that to last forever. I think GE is like a lot of companies out there right now, suffering under past mistakes (which are being corrected) and compounded by that whole virus thing (which is ending, one way or another). It's a lid of uncertainty that I fully expect will come off at some point, hopefully soon, and allow the stock to go much higher. 

As such, I've added a twist to my Wheel process: this morning I began using the premiums I have been collecting to go long GE shares. 

One of the things that is sort of a disadvantage of The Wheel is that your upside participation is somewhat limited. I don't particularly mind that as I consider this what I like to call "Bird in Hand" trading, an approach that deliberately seeks current, realized income rather than hypothetical future gains. In other accounts I do play the long game with very long time horizons, but this one is primarily about generating cash for immediate needs. Since it's all just practice at this point (I'm not using any of the income this account has been throwing off for my immediate needs), mixing in a little of the longer term game isn't going to have any impact on my quality of life, and it gets me in on some of the action if GE stock takes off from current levels. Who knows, maybe this long position will just be a quick flip anyway (from a tax perspective, a short term cap gain would be treated the same as the option premiums, so why not?).

Disclaimer stuff: I'm not making any recommendations here, this is just me sharing what I am doing. 

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