The Wheel Strategy: Playing it Smart Before the Election
With election day approaching on Tuesday, we're all probably feeling the fatigue of political ads bombarding us 24/7. While some platforms are rolling out ways to essentially gamble on election results (looking at you, Robinhood, with your new "event contracts"), we want to focus on something more important: how to handle our wheel strategy positions heading into what could be a volatile week.
When Perfect Information Isn't Enough
Here's a sobering story from Michael Lewis' "Going Infinite" about election night 2016 at Jane Street Capital, where SBF worked as a trader. When their internal models suggested Trump would win, they took massive short positions, betting against the U.S. economy. Initially, it looked like the largest single-day profit in Jane Street's history. But then the market did something completely unexpected – it rallied. By morning, their "sure thing" had turned into the firm's biggest loss ever (Lewis, 2023).
This story perfectly illustrates why we need to stay humble about market predictions. As John Maynard Keynes famously observed, "Markets can remain irrational longer than you can remain solvent" (Keynes, 1940). Even now, as Stephanie Guild at Robinhood points out, the market isn't showing election anxiety where we'd expect – instead of elevated VIX levels, we're seeing unusual volatility in the bond market (Guild, 2024).
Our Approach This Week
Full disclosure: while our team has traded through elections before, this is our first time specifically running the wheel strategy through a presidential election. Here's how we're thinking about it:
- Focus on Risk Management: The wheel strategy isn't about gambling or hitting home runs. It's about generating consistent income over time through disciplined trading. Research shows that consistent monthly returns of even 0.75-1.5% can significantly outperform the S&P 500 over time when properly managed (Sims, 2023).
- Mind Your Position Sizing: Remember that it's nearly impossible to diversify away systemic risk during major market events. Keep individual positions to 10-15% of your portfolio maximum.
- Consider Cash Position: Since most of our campaigns naturally close on Fridays with Monday reopening, this might be an ideal time to maintain a higher cash position than usual. If you have cash-secured puts that can be closed profitably, consider taking those gains and waiting for clarity. For those looking to earn something on their cash while waiting, BIL (SPDR Bloomberg 1-3 Month T-Bill ETF) is currently yielding around 4.5%.
What Not To Do (Even When Premium Looks Irresistible)
Yes, we've all noticed those eye-popping 26% premiums on Trump Media & Technology Group (DJT) puts expiring right after the election. But remember, premium that looks too good to be true usually comes with hidden risks that could sink your whole portfolio. This isn't the time to abandon our core principles of risk management and disciplined trading.
Looking Ahead
Rather than trying to predict exact market reactions, we're keeping some powder dry for opportunities that may emerge post-election. If Trump wins, we'll be watching mega-cap stocks with significant China exposure for potential entry points. But there's no rush – sometimes the best opportunities come to those who wait for the perfect moment to PLUNDER PREMIUM! ☠️
Remember, the wheel strategy's power comes from consistency over time, not from making big bets on binary events. Stay disciplined, manage your risk, and keep your focus on the long game.