Wealth Building With Options

Ep52 - Wheel Trades That Don’t Suck (Part II)


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Dan shifts from cash-secured put “double threat” setups to covered calls, especially the skate objective (keeping premium without assignment). He explains why technical analysis is often the most practical way to add edge to covered call strike selection, particularly by using resistance, momentum tools like RSI and realistic range expectations. He also walks through how to sanity-check any setup with annualized yield and what to do if the stock runs through your strike (accept assignment vs. roll proactively).

Key Topics
  • Covered calls vs. cash-secured puts: same structure, different investor use cases
  • Planning covered calls by objective: skate (avoid assignment) vs. trade (sell stock)
  • Why technical analysis is especially useful for covered call skate trades
  • Resistance as a “speed bump” that can override pure probability distributions
  • Momentum tools for topping signals: RSI (overbought pullback, divergences) and ADX
  • Range expectations using volatility and why it’s informational, not true edge
  • De-annualizing volatility to estimate a short-term range (standard deviation over DTE)
  • Why “84% probability” strike-setting can be arbitrary and premium congruent
  • Limitations of implied vs. historical volatility for strike selection
  • Range indicators (Bollinger Bands/Keltner Channels): why Dan found them lacking
  • Introducing Dan’s custom tool: PAS (Price History Anchored Strike) indicator
  • Case study walkthrough: aligning resistance + PAS band, then validating with yield
  • Decision tree when strike gets threatened: accept assignment vs. roll up / up-and-out
  • Key Takeaways
    • Resistance can provide edge. It often repels advances more than a purely random (lognormal) model would suggest, making it useful for protecting covered calls.

    • TA beats “probability trivia.” Volatility-based strike placement mostly tells you odds that are already reflected in premium; resistance/RSI can add an extra “bump in the road.”

    • Annualized yield is the filter. Even if the strike is well-placed, the covered call still needs to pay enough to justify the trade.

    • Volatility estimates have limits. Implied volatility is heavily supply/demand-driven, and historical volatility may not match the coming regime. Use both cautiously.

    • Strike selection is never exact. You’ll always round to listed strikes; the goal is stacking confirmations (e.g., resistance + PAS range).

    • Management matters when the stock pushes through. If you want to keep shares, rolling early (often once ITM) is the proactive move; if not, assignment can be a clean exit.

    • Know your outcomes in advance. Skate objective traders should define when they’ll roll; trade objective traders should focus on the if-called transaction return.
    • Connect
      • Learn more about host Dan Passarelli and Market Taker Mentoring: MarketTaker.com
      • Get exclusive content including video trade walk-throughs, Dan's actual trades, monthly AMA webinars and more: wealthbuildingpodcast.com
      • Subscribe on your preferred platform and leave a review to help more traders discover the show.
      • Disclosure:

        Options involve risk and are not suitable for all investors. Prior to buying or selling an option, investors must read Characteristics and Risks of Standardized Options (ODD) which can be found at https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document

        Don’t trade with money you are not prepared to lose. Anything discussed on this show is intended to be generalized information and not intended to be a recommendation to buy or sell any security. The host and guests are not familiar with listeners’ specific situations. For trading information relevant to your specific needs, speak with a licensed broker or advisor.  

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