Options Bootcamp #38- Triple Income Trades

Published on: Jan 27 2014 by John Critchley

By: John J. Critchley, Jr.

Basic Training: The Triple Income or Wheel Trade

  • A great trade for novice options traders. Our friends at RCM call this the “triple income trade” or “the wheel of fun.”
  • What is it? Write a put to get long equity, then immediately write a call to sell equity. When should you use it? When should you not use it?
  • This is a great way to add some extra bang to your covered call trades.

Mail Call: Fabulous questions, insightful answers.

  • Question from Bit Tim: You recommend closing out your shorts when they go your way. Do you advise factoring the closing price of the trade in to your calculations when writing options? For example – write a put for $.30, but know at the onset that you will only collect $.25, because you will close it out for $.05. If more people did that at the outset, they might be less reluctant to close out their winner for a profit.
  • Question from Jack – I know you guys are not tax advisors, and so nothing you say can be taken as certain in any answer to this question.  I am a small time trader, and at the moment cannot afford a CPA with trading expertise in options to do my taxes. So I am wondering if you can talk about the potential tax consequences of front spreads, especially when used as covered call replacements?  I have had good success with this strategy, and I would like to move it into my margin account this year, instead of just using it in the IRA to avoid the tax headache.
  • Question from Alejandro Garcia, NYC – Given Wang’s experience in the Chinese market, I would be interested to hear John’s take on the impending launch of listed options in China in April. Does he think it will be a success? What will the popular strats will be with Chinese options traders?

 

You also can download the podcast via:

Itunes http://itunes.apple.com/us/podcast/options-boot-camp/id514144367

Stitcher: http://stitcher.com/listen.php?sid=971812

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