Wheel Strategy

How Wheel works

It turns a ticker you are comfortable owning into a repeatable income process, but the premium is compensation for real downside, not a substitute for it.

Exact option legs

Sell put → if assigned, sell covered calls until called away

• SELL 1 × $95.00 put expiring 2026-01-16 at $1.80

Payoff, breakeven and risk

At expiration the position is worth the intrinsic value of each leg. The maximum profit is $180.00, the maximum loss is -$9,320.00, and the position breaks even at $93.20.

Worked example

With the underlying at $100.00:

• Stage A sells the 95 put for 1.80; if it expires worthless the cycle repeats.
• If assigned, the basis is 93.20 and Stage C sells a 100 call for 2.00.
• Total premium across the two stages is tracked separately from the share P/L.

Strike selection

Pick a ticker and strikes you would hold through a drawdown. Aggressive strikes accelerate assignment; conservative strikes keep the cycle slower and lower-yielding.

Expiration selection

Weekly or monthly expirations balance decay against flexibility. Longer expirations collect more premium but reduce how often you can adjust the cycle.

Common mistakes

• Running the wheel on a ticker you would not want to own for months.
• Rolling puts down repeatedly to avoid assignment and compounding risk.
• Measuring only premium collected while ignoring the share position's losses.

FAQ

Is the wheel risk-free income?

No. Both stages carry real downside, and assigned shares can fall below your basis.

What tickers suit the wheel?

Liquid, optionable names you are comfortable owning at your chosen strike.

How do I measure wheel performance?

Track total premium plus the share P/L against the capital committed, not premium alone.

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