Advanced Strategy: The Wheel
The Wheel is a repeatable income strategy that alternates between cash-secured puts (CSPs) and covered calls. You sell puts until you get assigned shares, then sell covered calls until the shares are called away—then you repeat the cycle. It is popular with newer traders because every obligation is backed by cash or shares.
Before You Trade
These examples and charts are simplified teaching models. Confirm live pricing, liquidity, and assignment risk in your broker before placing real trades.
Wheel Strategy Overview
The Wheel is a two-step loop
You start by selling a cash-secured put below the current stock price. If the stock stays above the strike, you keep the premium and sell another CSP. If the stock drops below the strike at expiration, you get assigned 100 shares and immediately transition to selling covered calls above your cost basis.
Step 1: Sell CSP
Choose a strike you are happy owning. Collect premium while you wait.
Step 2: Own Shares
If assigned, you now hold 100 shares at a discount to market.
Step 3: Sell CC
Sell calls above your cost basis to generate income and aim for assignment.
The wheel is simply a cycle of cash flow: collect premium, buy shares if assigned, then sell premium again.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Step-by-Step Playbook
Build the wheel from the inside out
The key is choosing a stock you are comfortable owning for months. Then you define a repeatable process for strikes, expirations, and exits so the wheel feels like a system—not a guess.
Pick the stock
- •Liquid options with tight bid/ask spreads.
- •Stable businesses you would hold through dips.
- •Avoid meme stocks with huge overnight gaps.
Plan the cycle
- •Target 30-45 DTE options for better theta decay.
- •Sell CSPs around 20-30 delta to balance premium vs. assignment odds.
- •If assigned, sell CCs just above your cost basis to reset the wheel quickly.
Beginner-friendly rules
Start with one stock, one contract, and keep a written rule for when you roll, take assignment, or exit early. The wheel is not about perfect timing—it is about consistent repetition.
Payoffs & Outcomes
See the two halves of the wheel
The CSP half gets paid to wait for a lower entry price. The covered call half gets paid to sell shares at a profit. Together they create a steady cashflow approach, but remember the downside risk is still owning the stock.
CSP payoff: your best case is keeping the premium, and your risk mirrors owning the stock below the strike.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Covered call payoff: you collect premium but cap the upside above the call strike.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Example: CSP expires worthless
Stock stays above $95, you keep $230 premium and sell another put.
Example: Assigned shares
Stock closes at $92, you buy at $95 but your net cost is $92.70 after premium.
Example: Call away
Sell $102 call, stock finishes at $105, shares are called away for a profit plus premium.
Stacking CSPs + CCs
Sell both sides if you can afford 200 shares
If you already own 100 shares, and you can afford to buy 100 more, some traders sell a covered call and a cash-secured put at the same time. This is sometimes called a “covered strangle.” It works because a call and a put cannot both finish in-the-money if the put strike is below the call strike. Only one side is likely to be exercised, so you collect premium from both options if the stock stays between the strikes.
What you need
100 shares owned + enough cash for 100 more shares if assigned on the put.
Best-case outcome
Stock stays between strikes. Both options expire worthless and you keep both premiums.
If the stock rallies
Your call is assigned. You sell shares at the call strike and keep the put premium.
If the stock falls
The put is assigned. You buy 100 more shares at the put strike while the call expires worthless.
Key rule
Always set the put strike below the call strike. If the strikes cross, both options could become in-the-money.
Beginner framing
Think of this as running two wheel lanes at once. You are either selling your current shares at a profit or picking up additional shares at a discount—both outcomes are acceptable only if you truly want to own 200 shares.
Greeks In Motion
How the wheel reacts to Greeks
The Wheel is short option premium most of the time. That means it benefits from time decay (theta) and can lose when volatility spikes (vega). It also has delta exposure because you are selling puts and owning stock.
Theta decay accelerates as expiration approaches. Selling 30-45 DTE options gives you a smoother decay curve.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Delta exposure shifts: short puts get more negative as price falls, covered calls get more positive as price rises.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Vega example
If IV rises 10%, your short option premium may increase by about $0.38 (using 0.038 vega). That means your position loses value in the short term even if the stock is flat.
Gamma example
As expiration nears, gamma spikes. A small stock move can swing delta quickly, which is why many wheel traders roll or close before the final week.
Vega impact example: even small IV changes move option prices when you're short premium.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Risk Controls
Protect the downside and avoid big surprises
The Wheel is not risk-free. It works best when you manage position sizing, avoid earnings shocks, and respect your exit rules. The biggest risk is owning a stock that keeps falling.
Position sizing
Never allocate more than you can hold for months. Keep total wheel exposure diversified.
Earnings awareness
Avoid selling options through earnings if you are not prepared for large gaps.
Roll with intention
Roll early for time/strike improvements, not because you hope the stock recovers.
Know when to pause
If the stock breaks a key support level or you no longer want to own it, stop the wheel. You can close the position, accept a loss, and move to a higher-quality stock.
Quick Checklist
A repeatable wheel plan
I like the stock and can afford 100 shares.
My CSP strike is below support with ~20-30 delta.
I understand my breakeven after premium.
If assigned, my covered call strike is above cost basis.
I avoid selling through major earnings unless I want the risk.
I track theta, delta, and IV so I know why my option price moves.
Who This Is For
Traders who understand covered calls and cash-secured puts and want to combine them into a repeatable income cycle.
Learning Objectives
- • Describe the two-step Wheel cycle: sell puts, get assigned, sell calls, get called away, repeat.
- • Choose appropriate stocks, strikes, and expirations for the Wheel.
- • Calculate cost basis after assignment and determine covered call strikes accordingly.
- • Understand how theta, delta, and vega affect both legs of the Wheel.
- • Know when to pause or exit the Wheel to protect capital.
Risk Note
The Wheel is not risk-free. If the stock drops significantly after you are assigned, you own shares at a loss. Selling covered calls below your cost basis can lock in that loss if shares are called away. The biggest risk is getting stuck holding a declining stock while collecting small premiums that do not offset the drawdown.
Example Walkthrough
Scenario: XYZ is at $100. You start the Wheel by selling the $95 put for $2.30 (45 DTE).
Best case: stock stays above $95
Put expires worthless. You keep +$230 and sell another CSP. Repeat.
Assigned: stock drops to $92
You buy 100 shares at $95. Cost basis = $95 − $2.30 = $92.70. You then sell a $95 covered call for $1.60. If called away: profit = ($95 − $92.70 + $1.60) × 100 = +$390.
Worst case: Stock drops to $70 after assignment. Your shares are worth $7,000 but cost you $9,270. Even selling calls, the small premiums ($100–$200) take many months to close the gap.
Common Mistakes
Wheeling a stock you would not want to own
The Wheel only works if you are comfortable holding shares for months. Picking a stock purely for premium leads to painful drawdowns.
Selling calls below cost basis after assignment
If the stock drops after assignment, resist selling calls below your cost basis unless you have a plan. If those shares are called away, you realize the loss.
Ignoring earnings and macro events
Selling options through earnings can result in large gaps. Pause the Wheel or widen your strikes around high-impact events.
Allocating too much capital to one Wheel
Each Wheel ties up the full share value. Running the Wheel on a $200 stock uses $20,000—make sure this fits your overall portfolio.
Quick Recap
- • The Wheel is a loop: sell CSP, then get assigned, then sell CC, then get called away, then repeat. Each step collects premium.
- • Choose a stock you want to own, with liquid options and stable fundamentals. Avoid meme stocks.
- • The biggest risk is a sustained decline in the stock after assignment. Have exit rules and never Wheel a stock you have lost conviction in.
Next lesson
Iron Condors
Up nextBuild a range-bound trade using a short call spread plus short put spread with defined risk.
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