I Ran The Wheel Strategy On SCHD (Was It Worth It?)

AI-generated source summary

The analysis focuses on the Schwab US Dividend Equity ETF (SCHD) and two of its top holdings, Merck (MRK) and Coca-Cola (KO). SCHD has demonstrated a remarkable year, outperforming the S&P 500. While often viewed as a dividend vehicle, the underlying strength comes from its top holdings, which have shown significant gains. The strategy proposed involves holding SCHD for its diversified dividend income and selling cash-secured puts on individual names within the ETF when specific technical setups occur. These setups include a pullback to the lower Bollinger Band with RSI approaching oversold conditions. For individual stocks like Merck, the analysis highlights its strong performance, recent all-time high, and dividend payout, suggesting it as a potential candidate for selling puts after a significant gap up, especially if implied volatility is elevated. Coca-Cola is presented as a less volatile alternative with a reliable dividend, making it suitable for put selling when the setup is right. The strategy emphasizes a dual-income approach: collecting SCHD's dividends and premiums from selling puts on chosen underlying stocks. It's crucial to separate capital for SCHD and put selling. The success relies on identifying liquid, dividend-paying US stocks that pass quality screens and have active option chains. The key risk is identified as binary events, and the recommendation is to check earnings dates before trading options on these names.

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