LAUNCH YOUR LEGACY
The Wheel Strategy
Understand the cycle. Know your obligations. Build your confidence.
Click a numbered step or select “Next step” to follow the wheel.
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Shares
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Cash FOLLOW CLOCKWISE
Step 1 of 6
Start with cash
Choose a stock you understand and are willing to own. Reserve enough cash to buy 100 shares at your chosen put strike for each standard contract.
What if you aren’t assigned?
The wheel does not automatically move to the next step. Here are two common outcomes when an option expires worthless.
Your put expires worthless
You keep the premium and your cash. You do not buy shares. Reassess before considering another cash-secured put.
Your call expires worthless
You keep the premium and your shares. Reassess before considering another covered call.
Follow the dollars
This hypothetical example follows one standard contract through a favorable cycle.
1. Start with $5,000
Choose a stock you are willing to own at $50 per share. Reserve $50 × 100 shares = $5,000.
2. Sell a $50-strike put and collect $100
Sell one put for $1 per share. One standard contract represents 100 shares, so you receive $100 before fees. Your $5,000 remains reserved for a potential purchase.
3. If assigned, buy 100 shares for $5,000
Buy the shares at the $50 strike. You now own 100 shares and retain the $100 put premium.
4. Sell a $52-strike covered call and collect $80
Sell one call against your 100 shares for $0.80 per share. Receive $80 before fees. You agree to sell the shares at $52 if assigned.
5. If assigned, sell the shares for $5,200
Sell 100 shares at $52. Your share gain is $200. You also retain the $100 put premium and $80 call premium.
6. Return to cash and reassess
You now have $5,380 before fees and taxes: $5,200 from the share sale plus $180 in premiums. Decide whether another cycle fits your goals and risk.
This is an illustration, not an expected return. It excludes fees, taxes, dividends, and interest. Stock losses can be much larger than the premiums collected.
Learn the language
Premium
The price of an option. As the seller, you receive it. A quoted $1 premium generally equals $100 for one standard 100-share equity option contract. Premium received is not automatically profit on the overall position.
Strike price
The agreed price per share at which you must buy stock if assigned on a short put, or sell stock if assigned on a short call.
Expiration date
The date the option expires. American-style equity options can be exercised before expiration, so a seller can be assigned early.
Assignment
You must fulfill the option contract you sold. Put assignment requires buying shares at the strike. Covered-call assignment requires selling your shares at the strike.
Cash-secured put
A put you sell while reserving enough cash to purchase the shares if assigned. One standard contract typically requires cash for 100 shares at the strike.
Covered call
A call you sell against shares you already own. One standard call typically requires 100 shares. Those shares cover your delivery obligation if assigned.
What are the main risks?
A stock can fall substantially. A put can require buying above the market price. After acquiring shares, you bear their downside risk. A covered call limits upside above the strike while the call is open. Premiums offer limited protection. Standard contracts typically cover 100 shares; adjusted contracts can differ.
Check your understanding
Learn first. Trade with a plan. Educational content only, not personalized investment advice. Options involve risk and are not suitable for every investor. Broker approval is required. The wheel does not guarantee income or profits. Consider the stock, position size, and potential loss before entering a trade.