Wheel Strategy 101

Sell. Collect. Repeat.

The Wheel is an options income strategy with one rule: only sell puts on stocks you'd buy. Everything else is just following the flowchart.

Start Here

You have cash in your account.

Find a stock you'd be happy owning. Set aside cash equal to the strike price × 100 shares. This is your collateral — real cash, not margin.

Step 1

Sell a cash-secured put.

Choose a strike price below the current stock price. You collect premium immediately — it's yours to keep no matter what. Now wait until expiration.

Example

Stock at $85. You sell the $80 put.

You collect $2.50 per share ($250 total). You set aside $8,000 in cash as collateral. If the stock stays above $80 by Friday, you keep the $250 and your cash is freed up. That's a 3.1% weekly return.

Expiration day — where is the stock?

↓

Above your strike

↓

Put expires worthless

You keep the full premium. Collateral is released. You didn't have to buy anything.

↓

Back to Step 1

Sell another put. Collect another premium. Repeat the cycle.

Below your strike

↓

You're assigned 100 shares

You buy at the strike price. But you already collected premium, so your real cost basis is lower. Example: $80 strike − $2.50 premium = $77.50 effective cost.

↓

Go to Step 2 ↓

You now own shares. Time to get paid again.

Step 2

You own the shares. Now get paid again.

Sell call options against your 100 shares. Pick a strike above your cost basis so if the shares get called away, you sell at a profit plus keep the premium.

Example

Cost basis $77.50. You sell the $82.50 call.

You collect $1.80 per share ($180). If the stock stays below $82.50, you keep the shares + $180. If it rises above $82.50, you sell at a $5/share profit ($500) + keep the $180 premium. Either way, you get paid.

Call expiration — where is the stock?

↓

Below your call strike

↓

Keep shares + premium

Call expires worthless. You still own the shares. Sell another covered call next week.

↓

Repeat Step 2

Keep selling calls against your shares and collecting premium until they're called away.

Above your call strike

↓

Shares sold at a profit

Your shares are called away at the strike price. You collected premium on the put, premium on the calls, and sold the shares above your cost basis. Triple win.

↓

Back to Step 1

Cash is back in your account. Start the entire cycle again with a new put.

That's the whole strategy.

You collect premium at every step. Whether you keep the cash or buy shares, you're getting paid. The cycle repeats as long as you keep trading.

Sell Put → Collect → Assigned? → Sell Call → Collect → Called away? → Repeat

Know Your Numbers

What to check before every trade.

≥1%

Weekly Yield

Premium ÷ collateral. Your weekly paycheck target.

30–80%

IV Sweet Spot

High enough for fat premiums. Not so high the stock is a dumpster fire.

0.20–0.35

Delta Range

20–35% assignment chance. Far enough OTM for a cushion.

5–30

Days to Expiry

Weeklies to monthlies. Theta decay accelerates hardest in the final days.

✓

Weekly Options

No weeklies = can't run the Wheel efficiently. Check before you trade.

✓

Would You Own It?

Rule #1. If you wouldn't hold it 3 months, don't sell the put.

Don't Do This

6 ways to blow up your account.

Chase premium on junk stocks

High IV usually means the stock is garbage. Only wheel names you'd actually hold.

Put 50% of your capital in one ticker

One bad earnings report wrecks your whole account. Spread across 5–10 names.

Sell puts into earnings week

The IV is juicy. The gap risk can erase months of premium in a single morning.

Use margin instead of cash

A margin call during a crash forces you to sell at the worst possible time. Cash only.

Set covered calls below your cost basis

If your call strike is below what you paid, you're locking in a loss when shares get called away.

Enter without an exit plan

Know when to roll, close, or take the assignment before you open the trade. Not after.

Serious Risk Warning

Cash-secured means cash. Not margin.

Before you trade, read this.

Always have the full collateral in cash. A $50 put = $5,000 cash set aside. Not borrowed money.
Margin trading is extremely dangerous for this strategy. A margin call during a drop forces you to sell at the worst time.
Only trade stocks you'd actually buy and hold for 3–6 months. If you wouldn't own it, don't sell the put.
Never risk money you can't afford to lose. Stocks can drop 50%. Options can expire worthless. Size accordingly.

Ready to explore?

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Disclaimer: The content on this page is for educational and informational purposes only and does not constitute financial advice, investment advice, trading advice, or any other kind of advice. Wagon Wheel Trading and WheelHouse do not recommend any specific securities, strategies, or account types. Options trading involves significant risk of loss and is not suitable for all investors. You could lose more than your initial investment. Past performance is not indicative of future results. Always consult with a licensed financial advisor before making investment decisions. Never trade with money you cannot afford to lose. By using this site you acknowledge that all trading decisions are your own responsibility.