Income Strategy

The Wheel Strategy

A repeatable cycle for generating weekly or monthly income by selling puts and calls on stocks you want to own.

Disclaimer: This content is for educational purposes only and does not constitute financial advice. Options trading involves significant risk of loss and is not suitable for all investors. Always consult with a licensed financial advisor before making investment decisions.

What Is the Wheel Strategy?

The Wheel is an income strategy that cycles through three phases: selling puts, owning shares, and selling calls. You collect premium at every stage, and the cycle repeats.

It works best on stocks you wouldn't mind owning long-term, at a price you're comfortable paying. The key insight: you get paid while you wait to buy, and paid while you hold.

The Wheel Cycle
SELL PUT Collect Premium OWN SHARES Get Assigned SELL CALL Collect Premium Assigned → Buy Shares Called Away → Start Over Expire = Keep $ Expire = Keep $

The Three Phases

1

Sell a Cash-Secured Put (CSP)

You sell a put option on a stock you want to own, at a strike price you'd be happy to buy at. You collect premium upfront.

Stock: AMD $120
Sell: $115 Put
Premium: $2.00
Cash Needed: $11,500
If stock stays above $115: Put expires worthless. Keep $200 premium. Sell another put.
If stock drops below $115: You buy 100 shares at $115. Effective cost: $113 (strike - premium). Move to Phase 2.
2

Hold Shares (Assignment)

You now own 100 shares. Your cost basis is the strike price minus all premium collected. Move immediately to Phase 3.

Key advantage: Because you collected premium from the put, your cost basis is lower than the strike price. You're already starting with a built-in discount on the shares.

3

Sell a Covered Call (CC)

With 100 shares in hand, sell a call option above your cost basis. You collect more premium and lower your cost basis further.

Shares at: $113 basis
Sell: $118 Call
Premium: $1.50
New Basis: $111.50
If stock stays below $118: Call expires. Keep $150 premium. Sell another call.
If stock rises above $118: Shares sold at $118 + kept all premiums. Profit realized. Back to Phase 1.

Case Study: A Complete Wheel Cycle

Let's follow one full cycle on AMD from start to finish.

WEEK 1 Sell $115 Put @ $2.00

AMD at $120. Collect $200 premium. Cash reserved: $11,500.

Income: +$200

WEEK 2 Put expires worthless. Sell another $115 Put @ $1.80

AMD at $119. Put expired OTM. Sell again.

Income: +$180 (Running: $380)

WEEK 3 AMD drops to $112. Assigned 100 shares at $115

Put was ITM. You now own shares. Cost basis: $115 - $1.80 = $113.20. Adjusted for all premiums: $115 - $3.80 = $111.20.

WEEK 4 Sell $118 Covered Call @ $1.50

AMD at $114. Sell a call above cost basis.

Income: +$150 (Running: $530)

WEEK 5 Call expires. Sell another $117 Call @ $2.00

AMD at $115. Call expired OTM. Sell again at a lower strike.

Income: +$200 (Running: $730)

WEEK 6 AMD rallies to $120. Shares called away at $117

Call was ITM. Shares sold at $117. Cycle complete.

Final P&L Summary

Total Premium:
$730
Share Gain:
$200
($117 - $115) x 100
Total Profit:
$930
ROI on Capital:
8.1%
in 6 weeks

When the Wheel Works Best

Ideal Conditions

  • + Stocks you want to own long-term
  • + Sideways or mildly bullish market
  • + High implied volatility (bigger premiums)
  • + Liquid options with tight bid/ask spreads
  • + Weekly or monthly expirations

Risks to Watch

  • - Stock crashes after assignment (unrealized loss)
  • - Missing big upside moves (capped by call strike)
  • - Capital tied up in 100-share blocks
  • - Low IV environments = small premiums
  • - Earnings announcements can cause big gaps

Pro Tips for Running the Wheel

Choose your strike carefully

Sell puts at a strike you'd genuinely be happy buying the stock at. Don't chase premium on stocks you wouldn't want to own.

Sell calls above your cost basis

Always sell covered calls above your break-even price. If called away below cost basis, you lock in a loss on the shares even though you collected premium.

Use weekly expirations for faster income

Weekly options decay faster (theta works in your favor) and let you adjust positions more frequently. Monthly works too for less active management.

Track every trade

The Wheel generates many small transactions. Without a journal, it's easy to lose track of your true cost basis and cumulative returns. That's what Tradez is built for.

Ready to Run the Wheel?

Tradez tracks every phase of your Wheel strategy — puts, assignments, covered calls, and the full cycle. See your real cost basis and income at a glance.

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