How using VALUE WHEEL options strategy "forces" me to be discipline in investing while giving me some actions in the game
There is a common saying that the retail investors always buy high, sell low. The reason for that is because they trade based on feelings that is greatly influenced by the movement of the stock prices. This can happen to value investor too.
When we have done all our due diligences and we value a company at say 100 per share. Large movement in the price can sway our conviction. When the price keeps rising to 120, 150, 170, FOMO can start to kick in causing us to buy high so that we won't miss the gains. Then what follows is the stock price plunging back down. Or when the price drop to 80, 60, 40, fear starts to creeps in. So instead of buying low, we give up buying completely. Then the price fly to the moon.
It is understandable why this happens because it is hard to sit on the sideline waiting while everyone seems to be in on the action, flaunting their paper gains. Your backside gets itchy. That is why I use options to execute my long term investment strategy so that I always get a piece of the action while staying disciplined and not break away from my trading plan.
Most people might see it as a WHEEL options strategy but I added an upper and lower limit to it and make it what I called a "VALUE WHEEL" options strategy. Or in another words, do not WHEEL an overvalued company.
So how it works? I will use $UP Fintech (TIGR.US)$ as an example. So when China begins cracking down on Chinese stock, I started to see opportunities in China stock. Thus I began analysing them. I love it when there is a crash, just like the covid crash, because that is when prices usually falls way below the company's fair value after accounting for the risks. Online brokerage stocks like $Futu Holdings Ltd (FUTU.US)$ and Tiger got into my radar. I started building valuation model for the company (assuming China market is completely banned, estimating future growth in customers, sales and margin, etc etc). I came out with a fair value of 5 for Tiger with a exit price of 10 (in the short term) and 20 (in the longer term). with these prices in mind, I can easily use options to execute my plan.
So I will buy when price is 5 in the short term, and the upper limit of my buy price is 7.5 (below 10). Even if the price rocket to 20 or 30 in the short term, I will ignore it and always buy at max 7.5. I will always sell when price hits 10 in the short term, and ignore any rallies. the rule is DO NOT DEVIATE unless there is some fundamental shift in the business.
Instead of buying and selling normally, I will use options to execute the trades. It is very similar to the WHEEL strategy but the difference between this "VALUE WHEEL" and the typical WHEEL is just having this value investing principle of upper and lower limit taking precedence over ROI on capital. Selling options at the set target price could yield very little premium but it doesn't matter as the value investing principle takes precedence over income generation.
So with that in mind, I started selling PUT options with a strike price of 5. This way I can earn premium regardless if the price drop below 5, plus I "locked in" my trade. So in October, I started selling PUT options. The first PUT expired worthless because the price of the stock was >5 but I collected usd18 per contract (I couldn't add the older PUT into this comment not sure why). After that contract expired, I sold more PUT and collected USD107 in total premium in November.
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On the day when this contract was going to expire, some FUD was released in the news (Reuters and CNA) causing a panic sell of both Tiger and Futu stock. Futu and Tiger drop about 15%. Tiger dropped to about 4 and I was so happy as I could finally buy the shares ![]()
The stock price recovered though after they release a statement saying the news was fake.
Tiger ended the day at 4.95. So I was assigned and I fork out 2,000 to buy 400 shares of Tiger.
So without using a PUT options, I would have placed a LIMIT order for 400 stocks at 5 anyway, so this is just a way for me to earn extra income (even when I don't get to buy the stock) for doing almost essentially the same thing.
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So after I gotten the stocks, I started selling covered call options to get more premium, and "forced" myself to sell when the price hit 10. This way I won't be greedy when there is a rally. That is one of the most common complains I see in the comment section where people got greedy and did not take profit. In the end they saw their 600% gain dropped into the negative.
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Since I also have a longer term target of 20, I will change the call strike price to 20 when the criteria is met. otherwise, I'm sticking to 10. I'm intending to sell more PUT with a strike of 2.5 too. since 2.5 is below my fair value of 5.
Using this VALUE WHEEL strategy, I can have some "action" by selling PUT and CALL option every month, so that kills boredom of the typical value investing of buy and hold. Plus it forces me to be discipline and give me extra income for being discipline.
Some of you might be wondering what if I'm wrong? Or what if unexpected things happen and the valuation goes haywire? It's either I take a hit or I'll use other tactics to try and recover from the trade. one of such tactics is known as rolling which is explained in this post: https://www.moomoo.com/community/feed/107452442279942?data_ticket=5b3500b278c1b7aa4a176e85285988a1
Hope this sharing could help you in your trades ![]()
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Love Durian : Good. Do you take in any student
be my personal coach. Fee fee
doctorpot1 OP Love Durian : glad it helps but I don't take students hahahaha. What I do is just some basic stuff only, can learn a lot online for free de. I'm not at the level to teach yet hahahahaha. Still learning and sharing what I learnt and do only![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
102785019 : thanks for sharing
doctorpot1 OP 102785019 : no problem
will share more over time and hope that I can help more people in moo moo 
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