Ep79 - How I Find Wheel Trade Candidates

Finding a great Wheel trade starts long before choosing a strike price or expiration. In this episode, Dan walks through his step-by-step process for finding candidates for covered calls and cash-secured puts. The process begins with a fundamental distinction: Are you evaluating a stock or ETF you already own or searching for a completely new opportunity? From there, whether you want to skate and collect premium or trade into or out of the stock determines which tools matter most.

Dan explains how he combines fundamental analysis with technical tools including support and resistance, RSI and his PAS Bands indicator. He also discusses where new investment ideas come from and why every idea still requires your own due diligence. The goal isn't simply to find stocks with attractive option premiums; it's to build a repeatable process for identifying candidates that fit your objective, valuation criteria and overall Wheel strategy.

Key Topics

• Starting the candidate-selection process with stocks and ETFs you already own
• Defining your skate vs. trade objective before choosing an option
• Using horizontal resistance to select covered call strikes
• Applying RSI to identify overbought and oversold opportunities
• Using PAS Bands to help establish covered call and cash-secured put strikes
• Evaluating long-term investments with fundamental analysis
• Using P/E ratios, discounted cash flow and other valuation methods
• Finding new Wheel candidates through research, scanners, AI, etc.
• Using support levels when evaluating cash-secured put opportunities
• Combining fundamentals and technical analysis based on the objective of the trade

Key Takeaways

• Start with the objective. If you already own the stock, determine whether you're trying to collect premium and avoid assignment or intentionally trade out of the position.
• Match the analysis to the trade. Long-term value opportunities generally call for fundamental analysis, while shorter-term skate opportunities rely more heavily on technical analysis.
• Resistance matters for covered calls. Dan looks to position skate-objective covered call strikes at or above meaningful horizontal resistance.
• Support matters for cash-secured puts. Strong support can help identify strike levels where historical buying pressure may improve the probability of skating.
• RSI can improve timing. Dan watches for moves back below 70 after an overbought reading for covered calls and back above 30 after an oversold reading for cash-secured puts.
• Valuation should guide entry and exit. If a valuation metric helped justify buying a stock when it was undervalued, that same framework can help identify when it has become sufficiently overvalued to sell.
• Dividend holdings require different thinking. A dividend yield is effectively locked in based on your purchase price. A rising stock price doesn't automatically make an existing dividend investment less attractive.
• Ideas are only the beginning. Friends, news, paid research, scanners and AI can generate candidates, but Dan emphasizes doing independent research before acting.
• Premium alone doesn't make a good trade. For a fundamentally driven cash-secured put, both the prospective purchase price and the return earned if the put skates should make sense.
• Build a repeatable process. The overarching theme is to use fundamentals for value-oriented investments and technical tools for skate opportunities rather than choosing candidates or strikes arbitrarily.

Connect

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For more information about subscriber-only articles, video training, monthly Ask Me Anything sessions, unusual options activity alerts, and access to Dan's real covered call and cash-secured put trades, visit https://wealthbuildingpodcast.com.

To learn more about Dan Passarelli, Market Taker Mentoring, and his book Build Consistent Wealth With Options, visit https://markettaker.com.

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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