The wheel, explained
The risks, and what we do about them
Where this strategy actually loses money, and the rules that are meant to contain it.
The wheel is not a way to avoid losses. It is a way to get paid while managing them. Here is where it genuinely goes wrong.
1. The company, not the trade
The real risk is being assigned shares in a business that keeps deteriorating. Premium income cannot rescue a company in structural decline. This is contained at selection, before any trade exists — and nowhere else.
2. Capped upside
Covered calls mean a sharp recovery gets sold away at your strike. You keep the credit and the gain to that strike, and you watch the rest go. Contained by rolling calls up when a position recovers, rather than letting them sit.
3. Adding capital into a falling position
A second put lowers the basis and increases the position at the same time. Done without limit that is how accounts break. Contained by opening at half size, so there is deliberate room to add once — not endlessly.
4. The human one
Most damage is done between the plan and the click: hesitating on a roll, hoping instead of taking assignment, doubling down out of frustration. This is the risk automation actually removes, and the reason the engine exists.
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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