The Wheel Strategy

The Wheel is a premium-selling strategy that combines cash-secured puts and covered calls to generate consistent income. It's one of the most popular strategies for options traders who want to get paid while waiting to buy or sell stocks at prices they're comfortable with.

Think of it as getting paid twice: once to potentially buy the stock, and again while waiting to sell it.

How the Wheel Works

🎯 The 3-Step Cycle

Step 1: Sell cash-secured puts on a stock you want to own
Step 2: If assigned, you now own the stock at your target price (minus premium collected)
Step 3: Sell covered calls on your shares until called away, then repeat from Step 1

Profit = Put Premium + (Stock Gains if any) + Call Premium

Step 1: Selling Puts

Cash-Secured Puts

You sell a put at a strike price where you'd be happy to own the stock. You must have enough cash to buy 100 shares if assigned.

Parameter	Typical Selection
Delta	0.25-0.35 (roughly 25-35% chance of assignment)
Expiration	30-45 days out (optimal theta decay)
Strike	Price where you'd happily buy the stock

📈 If Put Expires Worthless

You keep the entire premium as profit. Sell another put and repeat!

📉 If Assigned

You buy the stock at your strike. Your actual cost basis = Strike - Premium collected. Move to Step 2.

Step 2: Selling Covered Calls

After Assignment

Now you own 100 shares. Sell a call at a strike where you'd be happy to sell. This generates income while you hold.

Parameter	Typical Selection
Strike	At or above your cost basis (for guaranteed profit)
Delta	0.25-0.35 delta
Expiration	30-45 days out

📈 If Called Away

Shares sold at strike price + you keep the call premium. Return to Step 1!

📉 If Call Expires Worthless

You keep premium and still own shares. Sell another call and repeat!

Risks and Considerations

✅ Advantages

• Consistent premium income
• Buy stocks at discount
• Lower risk than naked options
• Works in sideways markets
• Simple to manage

⚠️ Risks

• Stock can drop significantly
• Opportunity cost if stock rallies
• Capital intensive
• Assignment at bad times
• Dividend risk if not careful

Best Stocks for the Wheel

🎯 Ideal Characteristics

Stocks you want to own — Never wheel a stock you don't want to hold
High IV — More premium, better returns
Liquid options — Tight bid/ask spreads
Stable or uptrend — Not in a significant downtrend
No earnings during trade — Unless you're comfortable with the risk

Generate Income While You Wait

The Wheel Strategy transforms waiting into profit. You get paid to wait to buy stocks you want, and paid again while you wait to sell them. It's not a "get rich quick" strategy—it's a consistent income machine for patient traders.

The key: Only wheel stocks you genuinely want to own at your chosen strike price.

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