The Wheel Strategy Explained

The Wheel Strategy lets you generate steady income or buy stocks at a discount by cycling between selling cash-secured puts and covered calls. This simple step-by-step approach works even if you are new to options trading.

Step 1 — Sell Cash-Secured Puts

Sell a put option on a stock you want to own. This means you agree to buy the stock at a price called the strike price if the stock price falls below it.

  • If the stock stays above the strike price, you keep the premium (income from selling the option).
  • If the stock falls below the strike price, you will "wheel in" and buy the stock at a discount.

Step 2 — Own the Stock

If assigned, you now own 100 shares of the stock at the strike price.

  • This means you bought the stock at a discounted price.
  • You hold the stock and get ready to generate income by selling calls against it.

Step 3 — Sell Covered Calls

Sell call options on your owned stock to earn additional income every week or month.

  • If the stock price goes above the call's strike price, your shares may be sold ("called away") at a profit.
  • Once sold, you can start the wheel again by selling cash-secured puts.

Summary

The Wheel is a continuous cycle where you earn premium income by selling options and either:

  • Keep earning income if the stock price does not cross your strike prices, or
  • Buy stocks at a discount and sell them for profit while collecting income.

Pro Tips for Success

  • Choose stocks you like and are comfortable owning long-term.Check fundamentals, technical analysis and charts to make the decision.
  • Pick strike prices where you'd be happy to buy or sell the stock.
  • Aim to collect at least 1% premium per week on the cash secured puts and covered calls combined to target approximately 52% average annual gain on the stock.

Live Wheel Strategy Scenario with Palantir Technologies Inc. (PLTR)

Current PLTR stock price: $160.84

Step 1 — Sell Cash-Secured Puts (First Attempt)

Sell 1 put option contract with a strike price of $155 expiring next week/month.
Receive a premium of $2.00 per share ($200 total).

  • PLTR stays above $155 at expiration, option expires worthless.
  • You keep the $200 premium as income.
  • Repeat Step 1 to sell another put.

Step 1 — Sell Cash-Secured Puts (Second Attempt)

Sell another put option contract with strike price $155 expiring following week/month.
Receive a premium of $1.80 per share ($180 total).

  • PLTR again stays above $155, option expires worthless.
  • You keep the $180 premium.
  • Repeat Step 1 again for next cycle.

Step 1 — Sell Cash-Secured Puts (Third Attempt)

Sell third put option at strike price $150 expiring next week/month.
Receive a premium of $1.50 per share ($150 total).

  • PLTR price falls below $150 at expiration.
  • You are assigned and must buy 100 shares at $150 per share.
  • Effective cost is $148.50 per share after subtracting premium received.

Step 2 — Own the Stock

You now hold 100 shares of PLTR at an effective price of $148.50 per share.

  • Stock is currently trading around $160.84, so you have an unrealized gain.
  • Prepare to generate income by selling covered calls.

Step 3 — Sell Covered Calls

Sell a call option contract at strike price of $165 expiring next month.
Receive a premium of $2.50 per share ($250 total).

  • If PLTR rises above $165, shares might be called away with profit.
  • If PLTR stays below $165, keep premium and repeat selling calls weekly/monthly.

Our Trading Tools

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What to check: stock price movement, trading volume, and volatility levels.
How to use: Use filters to shortlist stocks matching your trading style and risk tolerance.

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Find attractive option contracts with optimal premiums and expirations for your strategies.

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Explore the full option chains to review bid/ask prices, volumes, and expirations in one convenient place.

What to check: liquidity, bid-ask spreads, volume spikes, and expirations.
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Sell Covered Call Chain Screener

Screen covered call opportunities to maximize income from your stock holdings with suitable strike prices.

What to check: premiums compared to stock price, time to expiration, and strike positions.
How to use: Find and select covered calls that balance premium income with assignment risk.

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