Market Movements

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News Snapshot

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• What an investment in the financial crisis would have looked like.

• Stuffing Mattresses 2.0: Americans Load Up on Cash 

TL;DR

“Good-To-Know’s”

From a seller’s perspective, ITM options come with higher premiums but a greater risk of being exercised. OTM and ATM options are popular for selling Cash-Secured Puts (CSPs) or Covered Calls (CCs) because they offer a balance between premium income and the likelihood of being exercised, with OTM providing more safety and ATM offering higher premiums and higher assignment risk.

Relevant Quote(s) I Like

Thought Throttle

The undertaking of any new and worthwhile feat in life demands commitment, consistency, and—unfortunately—mistakes to learn from. Option selling is no different. When I made the leap from simple equity investing (boring, I know) into the world of derivatives, I stumbled. A lot. But even now, with more experience under my belt, there are still times I do everything “right” and still lose money. That’s just part of the game.

I was recently reviewing one of my first attempts at the Wheel Strategy. It brought back all the nerves, missteps, and surprises I faced along the way. But more importantly, it reminded me just how much growth came from that single trade.

Yes, I walked away with a profit—though I’d chalk that up more to luck than skill. But what I gained in insight was worth far more. So follow along, take notes, and let this be your learning curve instead of your tuition payment.

The Wheel Strategy

Before we dive into what happened, it's important to understand what the wheel strategy is. The wheel is an options-selling strategy that involves a systematic cycle of selling cash-secured puts on a stock you’d be comfortable owning.

If the put is not assigned, you collect the premium and repeat. If assigned, you take ownership of the stock and then begin selling covered calls on those shares. Once the shares are called away, you return to selling puts, thus continuing the “wheel.”

For more information on the wheel strategy, you can look through our previous newsletters.

Let's look at the trade and, subsequently, what I did wrong.

My GoPro Trade

Back in the Summer of 2021, I bought a GoPro Camera. I enjoyed the product and subsequently—without much due diligence into fundamentals—decided to Wheel the stock. On July 7th, 2021, GoPro opened at $11.45 per share, and I decided to sell a cash-secured put.

The option selected was the 23 JUL 2021 $10 Strike, which led to a premium received of $11.

The expiration date came and went, with GPRO closing at $10.25 on July 23rd, 2021. The option expired OTM, and I kept the entire premium.

That following Monday (July 26th), GPRO opened at $10.37, and I continued with the wheel strategy. I decided to sell a 20 AUG '21 $10 Strike and received a premium of $59. This elevated premium was largely due to the higher implied volatility that was associated with the upcoming earnings report.

GoPro posted a solid earnings beat that August (–$0.02 est. vs. $0.12 actual), causing the stock to rally from ~$9.80 to a high of $11.57 over the following days. Then it drifted back down toward $10. On August 16th, I closed the put for $20, locking in some profit but missing a better exit just days earlier.

Two days later, on August 18th, GoPro opens at $10.03. I continue with my strategy and sell the 10 SEPT '21 $10 Strike for $44 of premium.

And when September 10th rolls around, GoPro closes ITM at $9.61. I am assigned and purchase 100 shares of GPRO at $10 per share.

As the wheel strategy goes, I turn around and sell calls against my recently purchased shares. The Monday after I am assigned (September 13th), I sell a covered call on the 24 SEPT '21 $10 Strike option and receive a premium of $10.

On September 21st—for whatever reason that I don't recall, nor did I document—I decided to roll the covered call. I initiated a Buy-To-Close on my outstanding call, and sold another $10 Strike call with an expiry of October 15th. I paid $5 to close the September call, and received $27 in premium from the October call, netting me a $22 credit.

October 15th came and went, and GoPro remained OTM below $10. It closed on October 15th at $9.02. The following Monday (October 18th), I sold another $10 strike call with a November 19th expiration and received $22 in premium.

By November 19th, GoPro had risen well above $10 per share, closing at $11.45. Since the call was ITM, we were assigned and sold all 100 shares at $10 per share.

This is the summary of the trades in an Excel format:

Despite the many mistakes I made, I was fortunate enough to walk away with a profit. The total return on the trade was 14.8%, which annualizes to about 44.8%. But let’s be clear—that’s not typical, and in some ways, it’s dangerous.

Sometimes the market rewards bad habits, reinforcing poor decision-making. That’s why it’s crucial to evaluate your actions independently of the outcome. Just because you made money doesn’t mean you made the right moves.

Now, let’s look at where I failed and made my mistakes.

Mistakes Made

Not Selecting a Fundamentally Sound Underlying

The decision to enter the trade was based solely on my enjoyment of the product. While this can be a good place to start, it is so important to dig deeper. If I had looked further, I would have realized that it is not a good long-term buy.

GPRO currently sits at $.4862. With just a little bit of time committed to research, I would have discovered GoPro’s challenges, including declining demand, financial losses, cash flow issues, intense competition, market saturation, etc. I had a GoPro I liked and considered that good enough evidence.

Not to mention GoPro’s options trading volume was not great, which led to ridiculously wide bid/ask spreads. When selling the put on July 6th, the Bid price was $9 and the Ask price was $28. Not ideal at all.

Largely Ignored the Greeks

As you can see throughout the course of the strategy, there was no real rhyme or reason to why each expiration was chosen. It ranges from 11 to 32 DTE, with no explanation other than a guestimated selection. I just ‘had a feeling’ about those dates. I did not fully understand theta and how to optimize for time decay.

Another component that I overlooked was Implied Volatility (IV) and how it would effect the premiums. I didn’t consider how changes in IV can significantly impact option prices, especially during volatile periods. Rising IV leads to higher premiums while falling IV lowers them. By not factoring this in, I may have overpaid for options without realizing it, weakening my strategy.

I did not pay close attention to the delta of the options either—as you can also see from the range of different deltas. I was committed to the $10 strike regardless of how the market moved, or the information changed. Delta is crucial in strike selection.

Also note: With a lower-priced stock, there are typically fewer delta choices to work with. For example, a $10 strike put might have a delta of 0.20, while the next available strike, at $10.50, might have a delta of 0.40. This creates fewer options for adjusting your position based on your risk tolerance and strategy.

Unfocused and Undisciplined Mindset

The trade was also a result of a lack of discipline in staying on top of the updates and market developments. I got complacent and allowed my personal preference for the product to take the lead, instead of consistently tracking the company’s performance and any relevant news.

This lack of discipline meant that I wasn’t approaching the trade with the required focus or a systematic strategy, which ultimately led to an uninformed decision. Without staying diligent and keeping up with the necessary updates, it’s easy to make decisions based on outdated or incomplete information, and that’s exactly what happened here.

After the earnings beat, GoPro spiked, and had I been more engaged, I could’ve closed my put early for a much better return. On August 11th, for example, I could’ve bought it back for $4—locking in over 90% of the profit with 9 DTE left. Instead, I closed it for $20 five days later, losing unnecessary gains. That’s just poor trade management.

I also didn’t document my decisions thoroughly, which led to confusion later. For example, I rolled a call option but have no notes explaining why. Not too long after implementing this strategy, I decided to begin keeping a trade journal.

Game-changing.

Improper Position sizing

I had just over $6,000 to utilize on options, but I decided to execute the trade on five contracts (1 contract was used in the case study for simplicity's sake). While this seemed reasonable at the time, the size of the position wasn’t fully aligned with the capital I had available. There’s often debate about what the correct position size should be, but while I was trying to learn, I believe I became too fixated with my funds on this one position.

Had no real plan in place

My strategy boiled down to: “I like my GoPro and want to try the Wheel—why not both?” I didn’t think through what would happen if I got assigned, how I’d manage exits, or how I’d react to earnings volatility. It was pure improvisation. My plan could have been summed up in the Joker quote from The Dark Knight, “I’m just a dog chasing cars—I wouldn’t know what to do if I caught one.”

I wasn’t systematic in my approach. I chose deltas and expirations based on a feeling, not on any structured reasoning. This lack of a consistent strategy came back to bite me when GoPro spiked after earnings, and I missed the ideal exit.

Having a plan is crucial in trading, or any financial endeavor, because it provides structure and clarity in decision-making. A well-thought-out plan helps you define your goals, establish criteria for entry and exit, and manage risk effectively. Without a plan, you're left reacting to market movements impulsively, which can lead to costly mistakes and missed opportunities. By sticking to a systematic approach, you increase your chances of consistent success and avoid the emotional pitfalls that come with improvisation.

Summary

This trade ended with a gain, but the lessons I learned were far more valuable. Trading without a plan, proper research, or discipline will eventually catch up to you—even if it doesn’t on the first try. And sometimes, even when you do everything right, the market just won’t cooperate.

That’s why it’s critical to focus on process over outcome. Let your winners and losers teach you something, and if you’re lucky, let someone else’s mistakes save you a few of your own.

Stay sharp out there.

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