I Spun The Wheel and Took a LEAP on Nokia

I've been turning "The Wheel" on Nokia for several months now. For those who are not familiar with this options trading strategy, I've included the video at the bottom of this post. 

Today was very different though. 

Whether it was the news about Nokia's world-first deployment of a working 4G/5G Network Slicing attempt, or some random analyst's report (doubt that, no one really cares what analysts think), it caused a gap-up at the open that not only sustained throughout the trading day, but rallied into the close and rocketed higher in the after hours.

In my turns of The Wheel with this stock, I am presently "back to cash," so I was looking to sell puts. For months I've been swinging back and forth on the $4 weekly strikes going both directions, collecting premium the whole way, but this morning the action began above the $4.50 weeklies. 

A bit riskier! Riskier, because there was no telling if that price would hold. It was a gap-up, after all, and those tend to "fade"; that is, fall until they again meet the closing price from the previous session. 

On the other hand, if the price could hold up through today's session with a big daily gain, it could catch the attention of the "Robinhood crowd", a general description for a new breed of investor (speculator, really) that behaves as a momentum trader. Combine that with "techiness" of a 5G whatever headline and a "cheap" share price, the following day could be a rocket ride. 

So into the $4.50 January 29th expiration puts I went, selling them for $39/contract. 

I also believe that Nokia has a bright future ahead with 5G as the catalyst for a return to glory (for what it's worth, that analyst's note speculates that they may even reinstate their dividend this year, too). So, with the premiums I collected from the cash secured puts I had just sold, I bought January 2023 $4 calls, known as LEAPs, short for, "Long-Term Equity Anticipation Securities". 

Because an options contract controls 100 shares of the stock it is tied to, in essence I bought about two years of the right to control 100 shares of Nokia per contract at $4/share, $400 worth, for which I paid $196 per contract. I chose "in the money" contracts for reasons I might get into in a future post (Poor Man's Covered Calls, also because the delta was .75 at the time). Since these purchases were funded 78% with the premiums I collected writing cash secured puts that expire at the end of this week, I've got relatively little of my own money tied up in these things at the outset here, but with huge potential gains and limited downside (unless the company suddenly disappears tomorrow - unlikely). 

As of now in the after hours, Nokia has reached $5.16/share. Tomorrow will likely be very interesting. 

Lots of stuff here, lots of angles to this to explore and I'm definitely not doing it justice as a "how to", but I'm just wanting to chronicle what I did today rather than create any kind of a guide. That said, if you're curious about this stuff, I am using Robinhood for these trades, and this link will get you a free stock if you open an account and link a bank account to it. Knowledge is most of what you need to generate income from this stuff, the rest is tools; let me hook you up with the tools, get you a free stock and a brokerage account with no annual or maintenance fees, the knowledge can come later.

Edit 28 January 2021: DO NOT USE ROBINHOOD, THEY ARE A CAPTIVE BROKERAGE OF ENTRENCHED "ELITES" AND HELP THEM MANIPULATE MARKETS AGAINST RETAIL TRADERS

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.