Where can we take the wheel options strategy next
- Automate the trade
a. On your PC locally
b. In the cloud
2. Enable modern portfolio theory
Like target date funds, use different wheel/cash proportions at different ages — 80/20 when you are young and 20/80 when you are old.
3. Choose your leverage based on — risk parity:
a. Risk tolerance
b. Liquidity needs
Thoughts on why the wheel will always keep turning — similarly to why the invention of the wheel is as old as we can remember:
a. Biology and evolution
We all need to eat to survive — this goes back more than a billion years to the very first living organisms themselves — we move to eat and reproduce — it creates fear and greed.
So we have not evolved past fear and greed biologically for 1 billion years and it might take a long time to evolve past this on a biological basis going forward. However, culture, language, communication and technology have enabled us to “hack” this evolution and short-circuit the process.
Buy and hold and MPT are stage one in the investment business of scientifically “hacking” fear and greed. The next stage is the wheel and risk parity.
Levered ETFs create something similar to a free lunch in the world of volatility. Users and vendors of 3x ETFs over-emphasize the dangers of these potential weapons of mass destruction. The fact that the 3x bear index ETFs perpetually head to zero further validates this fear.
As a result, premiums are usually inflated beyond what a 1x equivalent proportionally adjusted index ETF should be theoretically priced at.
The wheel is the modern day equivalent of a second source of income or pension plan that you can collect before you are old or retire. It cashes in on time + volatility and this is the reason why it provides a higher return than traditional yield oriented investments like dividend stocks.
