The put is losing money. I’m still holding it. Here’s the math.
Real trades. Real money. Documented live.
The Start Here page has the full position list with live progress on every open trade.
CAT and WMT both closed at 50% profit this week. The GTC orders fired automatically — I set them when I opened the positions and never touched them again. That’s the system working.
Then there’s Merck. The stock dropped from $121 to $111.90 since I opened the put. The $110 put I sold for $2.04 is now worth $2.85. That’s a paper loss of $0.81 per contract. Most traders would look at that and close it.
I’m not closing it.
Here’s why: the mark on the option doesn’t tell me if I’m winning or losing. My effective cost basis if assigned is $107.96 — that’s the strike minus the premium I collected. MRK is still above my strike. The stock would need to fall another $4 before I even get assigned. And even if I do get assigned at $110, I own a defensive healthcare stock at $107.96. Then I sell covered calls.
The question I ask isn’t ‘is this option losing money right now?’ It’s ‘will this stock be above my strike on May 15, or am I okay owning it at my effective basis?’ If the answer to either is yes, I hold.
That’s the framework. It keeps you from cutting the position that would have expired worthless two weeks later.
What Closed This Week
CAT $700 put, June 18 — closed at 50% profit. $22.20 in, $11.10 out. GTC fired, position done.
WMT $115 put, June 18 — same result. $2.12 in, $1.06 out. Full details on Start Here.
What I Opened This Week
With CAT and WMT closed, I opened two new positions for July expiry to keep the wheel turning:
Disney (DIS) — $95 put, July 17
Stock at $102.60 — 7.4% cushion. Disney is trading near multi-year lows. The studio pipeline is real, the parks don’t close in a soft quarter, and the balance sheet is cleaner than it’s been in years. If I get assigned at $95, I own it at a price I’d buy outright.
McDonald’s (MCD) — $280 put, July 17
Stock at $299.20, $19 cushion. MCD doesn’t need economic tailwinds — it benefits when consumers trade down. Defensive premium with room to work. Both positions have GTC orders at 50%. Set and move on.
One Rule That Keeps You Out of Trouble
When a position moves against you, there’s one number that matters: your effective cost basis. That’s the strike price minus the premium you collected. If the stock is still above your effective basis, you haven’t lost anything — you’re just waiting.
The mark on the option will move against you as the stock drops. That’s normal. It’s not a signal to close. The signal to close is when your thesis on the stock has changed, not when the option mark makes you uncomfortable.
MRK at $111.90 with a $107.96 effective basis is not a problem. It’s just a position doing what positions do.
Where Things Stand
VIX at 19. Premiums are thinner than six weeks ago but the wheel doesn’t stop — you adjust size, keep the same rules, keep running the system.
Full scoreboard — every strike, every cushion, every percentage toward target — is on the Start Here page. I update it when positions open or close, not just on Mondays.
Until next time, keep the wheel turning.
— Keith
The Income Wheel | theincomewheel.com
Nothing in this newsletter is financial advice. I am documenting how I personally trade — not telling you what to do with your money.