Stocks that make money for you: The Wheel — Henry Chien

Disclaimer: This is for informational use only. Not investment advice.

What is the Wheel? What if there were a way to own stock AND be paid to own them?

The Wheel concept has completely changed how I view investing for my personal account.

Let’s contrast the Wheel vs. an standard institutional strategy.

Own a few stocks that appreciate for a long time.
Collect CASH yield on your stock to buy more stock or distribute elsewhere.

An asset portfolio that appreciates and continuously yields cash.

Time works in your favor and the market pays you for the volatility of the asset.

Institutional Strategy

Diversify over many stocks to achieve market return over time.

Yourself or a manager to buy and sell at specific levels to make capital gains.

Time works against you as you continously adjust assets to minimize market volatility.

Nearly all investment products are some form to the latter.

Now think about buying a house. You hold on to it, its useful, and you can collect rent on the house by offering it others.

The Wheel is the exact same concept for stocks!

How does it work? You pick good* stocks that will appreciate over a long-term through growth in its cash generation that you can own theoretically forever. Sell covered premiums on the stock through covered calls and cash-covered puts. Collect the premiums to build a cash reserve, reinvest in the stock or new stock, or distribute the cash to support your life.

Examples from my current portfolio:

SMID risk bucket (SE, PDD, BILI, PLTR, LSPD, VIR, LB, CURI) — roughly 30-day covered calls (30-delta) yields a return of slightly over 2%.

That’s a roughly 24%* APR NOT including the appreciation of the stock.

Small-cap risk bucket (SENS, CAN, EBON, BNGO, GMBL, MILE, MVIS, JAGX, NNDM, IDEX) — roughly 30-day covered calls (30-delta) yields a return of slightly over 23%.

Thats a roughly 276%* APR NOT including the appreciation of the stock.

(With caveat that these stocks have declined roughly 15–20% since momentum stocks have corrected)

As for me, I like these stocks, and I like the wheel.

*Good — yes I know that itself is an investment concept can run many directions.

*APR — these yields are very high right now and unlikely to persist for a long time.

Originally published at https://henrychien.com on March 1, 2021.