If you're an options trader who values consistency over chaos and believes in measured risk, then you’re likely on the lookout for strategies that reward patience and planning. Among the most practical, repeatable, and trader-friendly approaches is the Wheel Strategy—a time-tested technique that turns market fluctuations into an income opportunity.
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What is the Wheel Strategy?
In its essence, the Wheel Strategy is a premium-selling approach that helps you earn recurring income while positioning yourself to buy quality stocks at attractive prices—and then sell them at a profit.
It involves three cyclical steps:
Sell a cash-secured put to potentially buy a stock.
If assigned, sell a covered call to potentially sell the stock at a profit.
If the call is exercised and your shares are sold, go back to step 1 and repeat the cycle.
The strategy creates a loop—hence the name “Wheel”—where you keep collecting premiums whether you end up owning the stock or not.
Phase 1: Selling Cash-Secured Puts
The first part of the Wheel involves selecting a fundamentally solid stock you wouldn’t mind owning. You then sell a put option at a strike price below the current market price.
If the stock stays above the strike, the option expires worthless, and you keep the premium.
If the stock drops below the strike, you’re assigned the shares—purchasing them at the strike price, less the premium received.
This means you’re either getting paid to wait or buying the stock at a discount. It’s a win-win for patient traders.
Phase 2: Selling Covered Calls
If you’re assigned the stock, the next step is to sell a covered call at a strike price above your cost basis.
If the stock stays below that strike price, you keep the shares and the premium.
If it rises above the strike, your shares are sold (called away) at the strike price, and you keep the premium and the capital gain.
Now that you’re out of the stock, you go back to step 1—selling another put—thus completing the wheel.
How to Use Implied Volatility with the Wheel
High implied volatility (IV) increases the premiums you receive for selling options—but it also implies greater price movement. Our traders often use IV scans to identify stocks where:
Puts can be sold for a higher-than-average premium
Volatility is elevated but not explosive
The company has solid fundamentals and stable price behavior
This allows you to optimize the Wheel Strategy—collecting more premium without taking unnecessary risk.
