Wheel Strategy Strategy
A systematic approach cycling between cash-secured puts and covered calls for income.
Cumulative premium over multiple cycles
Stock going to zero (minus accumulated premium)
Depends on cumulative premiums collected
neutral
📖 What is the Wheel Strategy?
The wheel strategy is a cyclical income strategy that combines cash-secured puts and covered calls. Start by selling puts on a stock you want to own. If assigned, hold the shares and sell covered calls. If shares are called away, restart with puts. This systematic approach generates consistent premium income while building positions.
🔧 How to Set Up
SELL PUT @ OTM put at target buy price
Sell cash-secured puts until assigned
BUY STOCK @ N/A
If assigned, you now own 100 shares
SELL CALL @ OTM call above cost basis
Sell covered calls until shares called away
💡 Example Trade
Underlying: AAPL @ $175
Sell $170 puts monthly, if assigned sell $180 calls monthly
Accumulated premiums from continuous selling
Stock decline minus collected premiums
Purchase price minus total premiums collected
📊 Greeks Profile
Varies by phase. Positive when long stock.
Negative when short options.
Positive during both phases.
Negative when short options.
❓ Frequently Asked Questions
What are the best stocks for the wheel strategy?
Choose stocks with good options liquidity, reasonable IV for decent premiums, stable business fundamentals, and prices you'd be comfortable owning. Popular choices include blue chips, quality tech, and ETFs like SPY.
How much capital do I need for the wheel?
You need enough to buy 100 shares at the put strike. For a $100 stock, that's $10,000 minimum. Many traders wheel multiple positions with $50,000+ in their account.
Pros & Cons
- ✓Systematic and repeatable process
- ✓Generates income in multiple phases
- ✓Builds positions at discount prices
- ✓Can be mechanical - reduces emotional decisions
- ✗Capital intensive
- ✗Stock can decline significantly after assignment
- ✗May miss upside if shares called away early
- ✗Requires patience and discipline
Ideal Conditions
- →Neutral to bullish on quality stocks
- →Sufficient capital for share assignment
- →Looking for systematic income generation
- →Comfortable holding shares if assigned
💡 Pro Tips
- Only wheel stocks you want to own long-term
- Choose liquid underlyings with good option markets
- Keep track of your effective cost basis
- Be patient - the strategy works best over time