Cheap stock from companies trading under $10 could be an excellent vehicle for trading a wheel options strategy.
However, it might be difficult to find optionable growth-oriented best wheel stocks under $10—but not impossible!
So, what are the best stocks for the wheel strategy? We’ve put together a list of our favorites below.
5 Best Wheel Stocks Under $10 To Add
Nokia (NYSE: NOK)
Nokia is a global telecommunication equipment and infrastructure company based out of Finland.
The Finnish giant is best known for its 1990s popular cellphone model, but the company does much more than that.
Currently, Nokia is expanding its influence and business into 5G networks as well as profiting from licensing.
The expansion of 5G networks globally is still in its early stages, which could help the company see further growth in the near future.
This is a trend that could benefit investors seeking to employ the wheel strategy.
Nokia’s chart paints a fascinating story, the stock has been trading in a range since 2012. But NOK’s share price recently poked out of a downward trendline that connects it to its 2000s all-time high.
As it frees itself from the technical downward pressure of the trendline, it’s possible that bulls could regain interest in the stock—possibly benefiting wheel strategy investors.
NOK shares have high liquidity. Making it easy for investors to get in and out of the stock at a fair market price.
The stock’s daily average trade volume is also high, indicating a high trading interest from investors.
That along with a tight bid to ask could also make NOK an excellent candidate for the strategy.
However, the spread between the bid and the ask in the options chain is wider than other liquid stocks.
Palantir Technologies Inc (NYSE: PLTR)
Palantir is a company that specializes in big data analytics. The tech firm was co-founded by Peter Thiel, Nathan Gettings, Joe Lonsdale, Stephen Cohen, and Alex Karp in 2003.
The company’s platforms help businesses make decisions while offering multi-layered security, interoperability, and data privacy.
PLTR is among the best stock to buy for the wheel strategy.
Shares of the company printed an all-time high of nearly $45 back in January 2021. Delivering nearly 400% back in returns for shareholders in the short period after its IPO.
However, a blow-off top quickly brought the upward momentum to a halt.
The company has been on a downtrend ever since and now it finds itself nearly 82% from its top.
But things could turn around for Palatir, benefiting investors that look to employ a wheel options strategy on this ticker.
The sell-off has slowed down as the stock attempts to hold tight to its current price area, which is right below its IPO valuation.
If the tight grip continues, bears could get exhausted. Thus allowing the bulls to come back in and drive the stock upwards.
But technicals are not the only thing PLTR has going for it.
The company has also become a strategic partner to the United States government—arguably one of the best clients to have on your roster.
Palantir’s defense contracts with the US government—worth $229 million—were recently extended by the defense department. A boost that could help improve their balance sheet and move the stock to a higher price.
PLTRs average trading volume is quite high, trading at an average of 32 million shares per day. The options chain is showing a tighter spread on PLTR than that of NOK.
Sirius XM Holdings Inc (NASDAQ: SIRI)
SIRI is a broadcasting company headquartered in Manhattan, New York. The company is best known for its digital radio services which operate in the United States.
Their primary clients are found within the automotive industry as their service comes pre-installed with numerous vehicles.
Therefore, the outlook of new car sales tends to contribute to SIRI’s performance expectations.
The company had better than expected results during the last quarter. Fourth quarter earnings beat EPS by more than 20% and included a nearly 4% rise in revenue YOY.
The company did relatively better in 2022 than in previous years as it gained a larger subscriber base, beating its 2020 highs.
The company’s costs rose in 2022 in line with general inflation. But it balanced out thanks to its growing paid user base.
Their cash flow also looks very promising. In 2023, Sirius foresees an adjusted Ebitda of $2.7 billion with a free cash flow of nearly $1.05 billion.
SIRI’s option chain appears to have a wide spread between the bid and the ask on their option chain.
That means that the price between the bid and the ask on each contract has a large difference. This could present difficulties if or when contracts are exchanged.
Technically, shares of the company have fallen since Q4 earnings results, possibly due to their flat projections for the next quarter. Shares are now 22% lower than they were during their January high.
The selloff could overextend technical indicators toward the downside. Eventually prompting a price bounce fueled by an overextended March monthly candle.
We will be adding SIRI to our watchlist until then.
Credit Suisse Group AG (NYSE: CS)
Credit Suisse is a financial company based in Switzerland providing investment banking and wealth management services.
Most European banks have experienced challenges since the 2008 recession, and Credit Suisse is no exception to that.
Shares of the company are nearly 98% down from their all-time high of $80 in 2007.
However, after falling nearly 90% in the past decade, Credit Suisse shares could finally be ready to offer an attractive value.
The banking sector in general is picking up as inflationary pressures have helped the industry get back on its feet.
This industry-wide push could benefit Credit Suisse and consequently prove to benefit wheel strategy investors.
Fourth-quarter earnings for the company were the worst posted since the 2008 recession, turning 2022 into a lost year.
But the Bank’s CEO is fighting on all fronts to turn things around. It appears smart money is behind him as big firms have recently issued upgrades.
The stock has received numerous of them since 2022, including buy and neutral positions from BofA, JP Morgan Chase, and Goldman.
The CEO said in October 2022, that he is seeking to employ a new strategy to turn its business around.
The bank could make deeper cuts to its investment banking arm or even shut down entire divisions as Deutsche Bank did a few years back.
Another strategy that benefited Deutsche which CS might opt to employ is temporarily halting the payment of its dividends.
Companies that pay dividends tend to seek out this strategy when times get bad to reduce their cost basis.
Opko Health Inc. (NASDAQ: OPK)
OPK is a biotechnology company that focuses on diagnostics and testing, well-positioned to have benefited from the COVID-19 pandemic.
It could also continue to do so if new waves strike in the near future.
The company could also be well-positioned for growth in the short term due to one drug in particular—Rayaldee.
The drug was developed for the treatment of chronic kidney disease in adult patients that suffer from secondary hyperparathyroidism.
OPK is yet to announce fourth-quarter earnings, which could help option contracts that are slightly out of the money benefit from an IV spike.
IV, or implied volatility, is one of the deciding factors that form part of the options pricing formula—a complex mathematical equation that earned its creators a Nobel prize in economics.
The IV is influenced by the supply and demand of the options contract, and it tends to rise as earnings approach. Particularly for companies that are expected to have significant movements.
The IV spike could help traders using the options wheel strategy.
However, keep in mind that the IV could drain after earnings. Therefore, it could be a good idea to sell prior.
Understanding IV and other pricing factors of options contracts can be challenging and prices might not behave in parallel to the stock.
For example, a call option contract that expires close to earnings could lose value after the earnings announcement, even if the price of the stock moves higher.
This is largely due to the IV drain we previously discussed.
Shares from the company fell slightly below its 2020 market bottom, where they last bounced 500% upward.
All eyes will be around this level to determine if the stock might see renewed interest and push upward.
In the past, shares of OPK have climbed nearly as high as $20—twice. Leaving space for the company to run upwards close to 20 times its current valuation.
Are Wheel Stocks Under $10 a Good Investment?
Wheel stocks could be a profitable options strategy investment for generating passive income.
Trading options and making use of options strategies is no easy feat that can carry a great deal of risk.
Options are complex financial vehicles with intricate pricing algorithms.
However, some options strategies like the wheel could carry lower risk when compared to other options strategies.
The wheel options trading strategy involves selling put option contracts on a stock until assignment.
Then sell covered calls on the 100 shares that you own—because one option contract equals 100 shares of stock.
In order to generate consistent month-after-month returns with the wheel strategy, you need to choose the right stocks and have patience.
But when it’s used properly, the strategy could be a consistent way to make money on the markets.
One of the advantages of the strategy is that if stock prices stay stagnant, or drop, you could still generate a premium. Thus, lessening the loss.
Growth stocks are considered to be among the best stocks to trade under this strategy. That’s because stock appreciation is critical to make a profit with the wheel strategy.
But if the strategy has so much profit potential, then why isn’t everyone doing it?
One of the biggest roadblocks keeping most retail investors from using this strategy is the financial power required to buy 100 shares of stock.
That’s why we have chosen to focus our list on low-priced stocks that trade below $10. Buying stocks at a maximum price of $10 would equal only $1,000 for 100 shares, making it more accessible for everyone to buy.
Yet, investors might face some challenges when seeking out cheap stocks under $10 that are optionable.
Most stocks under $10 fall close to the realm of penny stocks and don’t offer options contracts.
Another critical factor with the options wheel strategy is to ensure your account has enough funds to cover the difference if options expire in the money.
Any stock carries inherent risks, but keep in mind that options are more complex trading vehicles.
The opportunities for significant profits are there, but you could very well likely lose all of your capital if you are not careful.
Therefore, it’s important to keep in mind that trading options require a different money management strategy. One way to manage the extra risk that comes with options is by lowering the size of your positions.
Whatever the case may be, make sure to cover all of your basis before making any investment decisions.
Wheel Strategy FAQS
Is The Wheel a Good Option Strategy?
The wheel options strategy could be a good fit for investors that feel comfortable trading complex options strategies. Option contracts are a complex and high-risk investment vehicle. Therefore, it could be a good idea to test out the strategy in a trading simulator prior to risking real capital.
Is The Wheel Strategy Better Than Buy and Hold?
The wheel strategy could be a better alternative than the buy-and-hold strategy since it could help minimize the downside risk while reducing the cost basis needed to earn large returns. However, the strategy does come with high risks.
What Is The Riskiest Option Strategy?
Most option strategies are considered to be high-risk, however, some do have control over their downside. When it comes to stock options, selling naked calls is probably the riskiest strategy of them all. Naked calls only have a limited gain potential and unlimited downside potential.
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