The wheel strategy is a popular, cyclical options strategy designed to generate income by selling cash-secured puts, acquiring shares if assigned, and selling covered calls until the shares are called away.
Key Components and Options
Step 1: Sell Cash-Secured Puts (CSPs): Sell out-of-the-money (OTM) puts, typically with a delta around 0.30 and 30–45 days to expiration (DTE). The goal is for the option to expire worthless, letting you keep the premium, or to acquire stock at a lower effective price.
Step 2: Assignment: If the stock price drops below the strike price, you are assigned 100 shares, paying the agreed-upon strike price.
Step 3: Sell Covered Calls (CCs): Once shares are owned, sell OTM covered calls (similar DTE) to generate income and reduce the cost basis.
Step 4: Stock Disposal: If the stock rises above the call strike price, shares are sold (called away), usually for a profit, returning the portfolio to cash to repeat the cycle
The wheel strategy is a popular, cyclical options strategy designed to generate income by selling cash-secured puts, acquiring shares if assigned, and selling covered calls until the shares are called away.
Key Components and Options
Step 1: Sell Cash-Secured Puts (CSPs): Sell out-of-the-money (OTM) puts, typically with a delta around 0.30 and 30–45 days to expiration (DTE). The goal is for the option to expire worthless, letting you keep the premium, or to acquire stock at a lower effective price.
Step 2: Assignment: If the stock price drops below the strike price, you are assigned 100 shares, paying the agreed-upon strike price.
Step 3: Sell Covered Calls (CCs): Once shares are owned, sell OTM covered calls (similar DTE) to generate income and reduce the cost basis.
Step 4: Stock Disposal: If the stock rises above the call strike price, shares are sold (called away), usually for a profit, returning the portfolio to cash to repeat the cycle