The wheel, explained

What is the wheel strategy?

Two option strategies used in sequence, so that you get paid at every step — including the step most people fear.

Written from a live book — day 39, 114 fills posted.

The wheel is a loop. You sell puts on a stock you would be happy to own. If the stock holds, you keep the premium and sell another. If it falls, you buy the shares — at a discount, because the premium came off your cost. Then you sell calls against those shares until they get called away, and the loop starts again.

Sell a cash-secured putChoose a company you would own anyway, and a strike you would be content to pay. You are paid a premium up front for taking that obligation.
Keep the premium, or take the sharesIf the stock stays above your strike, the put expires and you keep the credit. If it falls below, you are assigned the shares at your strike, minus everything you have collected.
Sell covered calls against the sharesNow you own stock, so it goes to work. Every call you sell lowers your cost basis again.
Get called away, and start overWhen the stock recovers past your call strike the shares are sold, you take the gain, and the loop restarts.

Most strategies pay you only when you are right. The wheel pays you for waiting, pays you for being assigned, and pays you again while you hold.

Where it can go wrong

Assignment is not the risk — owning the wrong company is. If the business deteriorates, no amount of premium fixes that. This is why the first decision matters more than any other: the strike, the timing and the premium are all secondary to whether you would own the company at all.

What running it automatically changes

The mechanics above are simple to describe and tedious to execute. Every week there are strikes to choose, expiries to compare, calls to roll and assignments to handle. Our engine does that on a fixed set of rules, at the same time every day, without the hesitation that costs discretionary traders their edge. Then it posts the result publicly, whether it is green or red.

This is not theory.

The algo runs this every trading day and every fill is posted publicly — wins and losses, updated hourly, on a paper account.

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The wheel, lesson by lesson

01Name your price, get paid for itWhat a cash-secured put actually is — who pays you, why, and the two ways it ends.6:31 02Getting paid to sellYou own the shares. Now the same trade runs the other way.6:49

03How the cost comes downBasis: what the shares really cost after everything you have been paid.in production

04Putting it together — the wheelPuts into shares into calls and back again.in production

05Taking the shares earlyWhen waiting stops paying you anything, and what to do about it.in production

06When it goes against youThe covered strangle, and the order to try things in.in production

07Finishing the tradeCalled away is the good ending. The mistake is reaching for more.in production

08Put or call — the same tradeAt the same price they are the same bet. The difference is where the cash sits.in production

09How a machine runs itThe rules, unattended, against a public book.in production

Watch the series on YouTube →

More on the wheel

How to pick a stock you would ownHow does a wheel strategy work step by step?What assignment actually looks likeWhat does selling options in a wheel strategy actually mean?How the cost basis comes downHow does the wheel strategy lower your cost basis?The risks, and what we do about themWhat are the main risks of using a wheel strategy?Wheel vs covered callsHow does a wheel strategy compare with a covered call strategy?