In today’s trade alert, like my last one, I want to start out by selling cash-secured puts with the intent of eventually wheeling into the position.
But I also want to place a trade that’s a bit more on the aggressive side as well. Some of you may be interested, others the opposite due to the underlying. But remember, we are trading statistics. The underlying is almost secondary. I’ll explain below.
But before I get to that trade let’s discuss our first trade … selling puts in VanEck Gold Miners ETF (GDX).
Again, the mechanics of the Income Wheel Strategy are simple.
- Sell Cash-Secured Puts on a stock until you are assigned shares (100 shares for every put sold)
- Sell Covered Calls on the assigned stock until the shares are called away
- Repeat the Process!
Of course, you can simply just sell puts without the need to wheel into the position. Some of you don’t want to own stock and I get it … which is why we also have an Income Trades Portfolio that is just trades, with no intent of holding stock.
As always, I want to choose highly liquid market stalwarts to sell premium against over the long term. These are typically lower-beta stocks with an average implied volatility. But I also want to focus my energies on defensive stocks that are somewhat uncorrelated to the overall market.
VanEck Gold Miners ETF (GDX)
IV: 38.8%
IV Rank: 43.7
Expected Move (Range): The expected move (range) for the July 15, 2022, expiration cycle is from just under 28.50 to 33.
With GDX trading for 30.76 I want to sell puts at the 29 put strike going out 35 days for roughly $0.66, if not higher. Of course, due to a wide variety of factors, prices may and most likely will vary slightly. My intent is to take off the trade and sell more puts well before the July 15, 2022, expiration date if GDX pushes higher.
The Trade
Sell to open GDX July 15, 2022, 29 put strike for a total of $0.66 or higher (As always, prices will vary, please adjust accordingly.)
Delta of short put: 0.28
Probability of Profit: 67.54%
Probability of Touch: 62.30%
Total net credit: $0.66
Max return (cash-secured): 2.3%
Risk Management
I will be using GDX as part of our Income Wheel Portfolio, so if GDX closes below our put strike at expiration we will be issued shares at the 29 strike and begin the process of selling calls against our newly acquired shares. Until that point, we will repeatedly sell puts on GDX. Of course, any necessary trade alerts/updates will follow.
Proshares Bitcoin Strategy (BITO)
IV: 91.6%
IV Rank: 39.6
Expected Move (Range): The expected move (range) for the July 15, 2022, expiration cycle is from just under 15.5 to 21.
With BITO trading for 18.19 I want to sell puts at the 16 put strike going out 35 days for roughly $0.82, if not higher. Of course, due to a wide variety of factors prices may and most likely will vary slightly. My intent is to take off the trade and sell more puts well before the July 15, 2022, expiration date if BITO pushes higher.
The Trade
Sell to open BITO July 15, 2022, 16 put strike for a total of $0.82 or higher (As always, prices will vary, please adjust accordingly.)
Delta of short put: 0.26
Probability of Profit: 64.65%
Probability of Touch: 65.50%
Total net credit: $0.82
Max return (cash-secured): 5.1%
Risk Management
I will initially be using BITO as part of the Income Trades Portfolio, but there is a chance I might move it to the Income Wheel Strategy just to see if it can give us some juice to what is otherwise going to be a fairly conservative income approach. Of course, any necessary trade alerts/updates will follow.
If you have any questions, please do not hesitate to email me at andy@cabotwealth.com.