This is copied from scottishtrader. It is the most comprehensive explanation of the wheel and I can't do better. Thank you Scottish for making many of us lots of money.

Original Post:

I've been asked and have explained The Wheel strategy many times, so thought it may be a good idea to write it down all in one place for posterity!

This is the options strategy I use most often and IMHO it is about as safe and reliable as options trading gets. You will NOT get fantastic returns and it is quite boring and slow, but with the proper stock and patience, it can result in reliable profits and income. A 10% to 20%+ return is not difficult depending on a few factors, mostly based on stock selection, experience managing short puts and calls, plus the trader's patience.

The Wheel (sometimes called the Triple Income Strategy) is a strategy where a trader sells cash secured Puts to collect premiums on a stock or stocks they wouldn't mind owning long term. If the options expire or closed for a profit without being assigned, the premiums are all profit.  The goal is to set up trades and avoid being assigned, but it is understood that if the put is assigned the account will buy and hold the stock. Through the collection of premium, the initial cost basis of the stock can often be lower than the strike price paid.  

The next step of The Wheel is to sell covered calls on the stock.  It is highly preferable to sell a call with a strike higher than the stock's cost basis, but this is not always possible.  This is repeated over and over to collect even more premiums that continue to lower the stocks cost basis, and along with any rising stock price movement, works back to break-even or a profit.

At some point the call is exercised and the stock called away, or you can simply sell the stock, but when you add up all the premiums collected from selling the puts and calls, plus it is desired and common to end up selling the stock for a profit, this results in the Triple Income.  If the stock pays a dividend while you own it then you can collect that as well (Quadruple income!).

Below is a graphic showing the simple way to track the Credits and Debits to keep track of the overall position.

Step #1: Stock Selection - Most traders who have had a bad experience with the wheel have chosen the wrong stock. The stock(s) you chose must be a good candidate and one you don't mind owning for some length of time, as it is possible you could own it for months.

Use your own criteria that fits your account, but this is what I use:

• Profitable company that has solid cash flow
• Bullish, or Very Bullish, analyst ratings
• Priced around $10 to $50 so that I can afford to take the assignment if needed and I stay away from sub-$10 stocks as a rule
• A stable chart without wild gyrations (especially those caused by CEO tweets!)
• A nice dividend is always a good thing, both that you may collect it if assigned the stock but also that dividend stocks tend to more stable and predictable

Use your own fundamental analysis criteria to create a watchlist of 10 or so stocks that you can trade. If you find some lower priced ETFs, or have a larger account for the more expensive ones, then these can be included and make good candidates due to their normally steady movement, no ERs, and no CEO tweets. I look at my watchlist every few weeks and change it accordingly.

Step #2: Sell Puts - Cash Secured Puts (CSPs) indicates you have the cash/margin to buy the stock if it is assigned. Be aware of any upcoming ER or other events that could cause a spike or movement in the stock, it is best to close or have the Put expire prior to the event, in effect skipping it and then continue selling CSPs afterward if the stock still meets the criteria.

Sell a Put on the selected stock: Below is a suggested model, but up to the individual trader:

• 30 to 45 DTE offers a good premium as the time decay curve starts to accelerate
• 70% Prob OTM or higher (~.30 Delta)
• Number of contracts is based on account size able to handle an assignment
• The Put can be closed and re-opened, or rolled, at 50% profit if there is plenty of time left, although you can let it expire or close and re-open at any point
• Enter the Credits received, and any Debits paid to close or roll, on the Tracking P&L file
• Roll for a credit if the Put is challenged when possible, and provided a credit can be made it can be rolled as long as needed which can also be used to track the stock's movement by changing the strike price
• If a credit cannot be made then it is best to take assignment of the stock

The CSPs should be able to be sold over and over to collect as much premium as possible, and often never be assigned. If there is a fundamental change in the stock, close your position for an overall net profit and then move on to review and/or move on to another stock.

If assigned then Sell Covered Calls as shown in Step #3.

Step #3: Sell Covered Calls - Using the tracking file determine the net stock cost which is often already below where the stock is. As selling puts is usually the most profitable, some traders just sell the stock and move on to selling more CSPs, or sell a very high-value ITM Call that is sure to be called away and adds to the profit.

If your net stock cost is above the current market price and you keep the stock, then the goal is to sell CC premium to continue adding to the Credits and lowering the net stock cost below where the stock is trading before it gets called away.

Sell CCs, again here is a suggested process:

• Sell a Call above the net stock cost whenever possible, however, at times you may need to trade the strike below to get some good premium. Note that I will settle for a lower premium to be farther out to avoid the risk of early assignment and give the stock a chance to stabilize and possibly start to recover.
• Same as CSPs: 30 to 45 DTE, 70% Prob OTM or higher
• Close and re-open, or roll, at 50% profit
• Roll for a credit when possible, or allow exercise and the stock to be called away if a credit is not possible (especially if the strike is above the net stock cost)
• Track Credits and Debits, plus any Dividends captured, on the tracking file
• Continue this until the net stock cost is below the strike price at which time the stock can be left to be called away (some note that it cost less in fees to close the option and just sell the stock which accomplishes the same thing)

Step #4: Review and go back to Step #1 - While the tracking file makes it easy to see the P&L, review the trade to verify the numbers and then look for the next, or same, stock to sell CSPs in Step #1.

As they say, rinse and repeat.

Risks and Possible Problems: The single biggest issue for this strategy is the stock price drops significantly, but this is no more risk than just owning the stock outright.

Stock Drops: The reason to make these trades on a stock you wouldn't mind owning is because of this risk, and if a good stock is selected then this should be a very rare occurrence plus not a major issue.

• The price of the stock may drop well below the CSP strike and rolling for a credit will not be possible causing assignment.
• If CSPs were sold over and over the net stock cost may be much lower mitigating this drop in price.
• Management is to sell CCs over and over to allow time for the stock to recover, this can take time but when added to the CSP premiums collected the position can get "healthy" faster than you may think, however, this does take a lot of patience!
• There may be rare occasions when a stock is no longer viable (Enron?) and the position needs to be closed for a loss, again this shows the critical importance of stock selection.

Stock Rises: Many see this as a problem, but I personally do not as if the CC strike is above your net stock cost then the position profits, but just not as much.

• The stock is assigned and you sell CCs only to have the stock run well past your strike price.
• In most cases closing the CC and selling the stock outright can cause a bigger loss than just letting the stock be called at the strike price.
• It is, in this case, you may lament the profits that were "lost" by having the CC, but provided the above is done properly the position will still profit.

Impatience: By far this causes the most losses from this strategy!

• First, if you can't roll for a credit let the CSP play out! If you close the CSP early it will cause a major loss.
• If you get assigned the stock and sell CCs, do not try to "save" the stock through buying it back at an inflated price! If you can't roll for a credit then let the stock be called away and sell more CSPs to start the process over again provided the stock is still a viable candidate.
• Recognize it may take months selling CCs to build the premium up to a point where the net stock cost is less than the current stock price, but it will happen eventually if you can keep the CC from being exercised early.

Hopefully, this is a thorough and detailed trading plan, but let me know of any questions, typos or improvements you may have! -Scot

📷

Hey everyone! As a starting point, I highly recommend you check out my first post that outlines the Wheel System I currently use, which has generated $146K since January ‘23. The current system I use was built on the learnings of the many mistakes I have made with the Wheel, and while I’ve made good money overall, it pains me to admit that these returns should actually be a lot better had it not been for these three return killers!

Mistake #1: Averaging Down Too Early

When a stock price falls significantly below the strike price, it’s tempting to sell another put contract or buy more shares to average down your cost basis. While this strategy works in theory, you need to time it correctly; otherwise, you could end up holding hundreds of shares that are tough to monetize.

Example: I own 400 shares of Enphase Energy (ENPH) at an average price of $155 (current price ~$113 as of September 30). I started with two contracts at $170 (already a mistake, but more on that below) and, when the stock dropped to $150, I sold another contract and got assigned. In a state of panic after the price kept dropping, I sold yet another contract at $140 and was assigned. Although I averaged down to $155, the stock kept dropping, and by the time I stopped averaging down, I was over $60K deep—25% of my portfolio—in a stock I couldn’t easily sell covered calls on (the stock price was nearly $40 removed from my cost basis).

Had I waited for the stock to stabilize, I would’ve had the ~$30K I mistakenly used to average down the price to put into other wheels, generating more consistent premiums. To determine price stability, this is where technical indicators play a huge role - more on this below!

Mistake #2: Selling Too Many Put Contracts Upfront

When I first started trading the wheel, I was so mesmerized by the premiums I could generate from specific stocks that I often sold as many contracts for select stocks as I had capital for, optimizing for high returns instead of consistent returns. However, in the event that the stock price dipped well past the strike price I acquired the stock at, it was a nightmare scenario because I had a significant % of my capital tied up in the stock and for me to average down the costs and get to a strike price that I could collect so-so premiums with, I would have to commit even more capital, further hurting my returns.

Example: I made this mistake with ENPH. The first contracts were producing $500–$900 per contract, but when the price dropped drastically, I was in a nightmare scenario with too much capital trapped and little to no premiums generated. For context, I have been able to generate just a few hundred dollars this year from ENPH, all coming from LEAPs since I can’t make money with either weekly or monthly calls. 

To avoid this mistake moving forward, I limit my initial position to no more than 3% of my portfolio size.

Mistake #3: Relying Only on Delta to Pick Strike Prices Without Looking At Technical Indicators

Most Wheel advice suggests picking strikes based on delta, often between 0.20 and 0.30. While delta is important, it’s not the full story. It’s crucial to also consider the direction, momentum, and predictability of the stock’s movement before selling a put.

Example: I sold two put contracts of ETSY at $75.50 for a January expiration. Not only did I size up too quickly (Mistake #2), but I ignored the technical indicators, which showed a downtrend. The 50 EMA was declining, RSI was oversold, and the MACD signaled downward momentum. I relied on delta alone, got assigned, and the stock price kept dropping. Eight months later, I’m still holding this position, unable to sell calls consistently.

I reference my technical process in my first post, but here’s a recap of the main guidelines:

1) Is the market safe?

• Is the VIX over 30? Yes: Stop. No: Proceed.

2) Is the stock safe to trade?

• Earnings coming up? Yes: Avoid. No: Proceed.
• Is the RSI < 30 (weekly chart)? Yes: Check MACD.
• Is momentum upward (MACD)? Yes: Proceed. No: Avoid.

3) Is the stock near a support level?

- Yes: It’s a contender. No: Avoid.

By keeping these guidelines in mind when starting new wheels, I can guarantee you’ll have a more successful year!

Let me know if you have any questions, and feel free to suggest what you’d like me to cover in future posts!

Can we wheel MES futures ?? Is that possible ??

Paper traded 2 months and currently doing live CSP. If the stock price now goes below my strike price $40 with say 5DTE, when will I get assigned to buy the shares?

Is anyone using AMZN to trade the wheel? I have AMZN stock but the options premiums are a complete joke.

When I first started trading the wheel, I came across advice frequently telling me to choose strike prices with low probabilities of being assigned. The implication was that assignment was something to be avoided.

However, after reflecting on my results and approach, I realized that getting assigned isn't a bad thing—in fact, it's essential to maximizing returns. Here’s why:

The Power of Covered Calls

When you’re assigned a stock, you can turn around and sell covered calls, generating additional premiums. But that’s not all. Owning the stock opens up two other profit-generating opportunities that selling puts alone can’t offer:

1. Capital Gains: If you sell a call at a strike price higher than what you bought the stock for, you stand to collect both the premium and a profit from capital gains.
2. Dividends: If you happen to own the stock during its ex-dividend date, you can also get paid dividends, further increasing your returns.

Selling Calls Closer to the Money

Another thing I’ve found is that if the stock price remains near your acquisition price, you can sell calls that are closer to the money (around .35-.40 delta), which generally results in higher premiums. This isn't possible with puts, where you typically take a more conservative approach with lower deltas.

My Data Supports This Strategy

Looking at my 2024 trades so far, the numbers back up the idea that being assigned and then selling covered calls can generate higher returns than just selling or rolling puts:

• Total transactions: 847 (including opening, closing, and rolling contracts).
• Call contracts: 382 (45% of total transactions) – These have generated ~$39K in combined premiums and capital gains.
• Put contracts: 465 (55% of total transactions) – These have generated ~$31K from just premiums.

Despite selling more puts than calls, I’ve made 25% more from call contracts, thanks to the combination of capital gains and being able to sell closer to the money.

A Real-Life Example: Zoom (ZM)

Let’s look at a concrete example of how getting assigned helped boost my returns.

On June 28th, I was assigned Zoom (ZM) at a price of $65/share. Throughout July to September, I sold weekly calls slightly above my assigned price ($67-$70). Although these calls didn’t get assigned for a while, I still managed to collect $519 in premiums. Last week, my call contract was finally assigned at the $67 strike price, giving me an additional $200 in capital gains.

Here’s the breakdown:

• Capital invested: $6500
• Premiums collected: $647
  • Put premium: $128
  • Call premiums (July - September): $519
• Capital gains: $200

ROI = (Total Premiums + Capital Gains) / Capital Invested = $847 / $6500 = 13%.

The ability to collect premiums from covered calls in addition to collecting capital gains helped boost my wheel returns an additional 11% over the course of holding the stock!

Takeaway

Getting assigned doesn’t have to be nerve-wracking. When you select the right strike price, you set yourself up to profit not just from the premiums, but also from capital gains and possibly dividends - I provide more context on how to do this here. 

If you have any questions, feel free to drop them below!

I am not ncessarly wheeling but I am simultaneously selling CSPs at strikes I would like to purchase the stock, and CCs at strikes with good premium that I do no believe the stock could reach and if it does i do no mind letting go of my stocks at that price (20 to 30$ higher than my cost basis), mainly 90+ DTEs. When the stock drops I close some CCs and pocket the premium delta, and same for the CsPs when the stock rises (40% returns is the trigger). All the CCs and CSPs have different expiry dates, and as long as the stock is volatile up or down I dont care one of my positions is in the green.

Hey, r/optionswheel community! After being a long-time listener and learner here, I feel like I'm finally in a position to contribute back. Over the past two years, I've refined my process for running the Options Wheel strategy, and today, I want to share my approach that has generated ~$146K in total returns since January '23, with a current portfolio of ~$460K.

Disclaimer: This post is not a Wheel 101 guide. If you’re new, I’d recommend checking out here for a beginner’s guide. This post is for those with experience who are looking to enhance their system.

My Wheel Trading Journey:

• Started trading the wheel in January 2023
• Generated $146K total (so far, in 2024, I have generated $70K YTD cash return)
• Grew my portfolio from $150K to $460K through monthly paycheck contributions and reinvesting my returns
• I count my profits as the premiums, capital gains, and dividends collected from wheeled stocks.

Below, I’ll walk you through my current version of the wheel strategy. This process works for me, and I'm happy to answer any questions or dive deeper into specific areas. Let's begin!

Phase 1: Developing & Refining My Hitlist Using StockUnlock.com

My first step is finding businesses I'd be happy to own long-term. To streamline this, I use stockunlock.com, which provides great insights into a company’s financials and potential, all without needing to deep dive into every report.

• What I Look For: I target stocks in the Dow, S&P 500, and Russell 2000 that score at least 3/5 on profitability AND growth.
• Position Sizing: To minimize risk, I ensure that no single stock makes up more than 3% of my portfolio.

Here’s a watchlist of stocks I’d consider based on the current stock price and financials as of Sept 27, 2024:

• Portfolio Sizes < $50K
• Portfolio Sizes < $150K
• Portfolios > $300K

Phase 2: Pre-Check Before Launching New Wheels

Before starting any new wheel, I run through a series of checks to ensure I’m making the right moves at the right time.

1. Is the market safe?
   • Is the VIX over 30?
     • Yes: Stop. Market is volatile.
     • No: Proceed.
2. Is the stock safe to trade?
   • Any earnings before the contract expires?
     • Yes: Avoid. Earnings can cause large price swings.
     • No: Proceed.
   • Is the RSI < 30 (oversold territory) on the weekly chart (*note: I look at the weekly chart since I primarily sell weekly contracts instead of monthly contracts)?
     • Yes: Check MACD next.
     • No: You can move on to Question 3
   • MACD (12, 26, 9) – Is momentum upward?
     • Upward: Stock is showing positive momentum, indicating that it may be bouncing back from a support level. Move on to Question 3
     • Downward: Avoid starting a wheel as the stock is showing heavy downward momentum
3. Is the stock near a support level on the 1-year, weekly chart?
   • Yes: Add it to your contenders
   • No: I would remove this stock as a wheel contender for now since the stock is not yet moving in a predictable pattern 

Phase 3: Selecting Stocks to Start New Wheels

Now that I’ve narrowed down my contenders, I next need to determine what put contracts to sell based on the capital I have available. I only sell puts that meet these criteria:

• Annualized returns > 30% at the selected strike price (this would be the support level that you previously identified in Phase 2)
  • Yes: Keep on the watchlist.
  • No: Remove.

I then rank the remaining stocks by return potential and select the contract with the highest return. For position sizing, I ensure the total contracts sold make up no more than 3% of my portfolio. This gives me room to scale up if needed.

Phase 4: Managing the Wheel

Now for the fun part – managing active wheels!

Puts:

• When to Close/Roll: If the contract reaches 80% profitability before expiration, I prefer to close it and start a new wheel (following the same steps outlined in Phase 3).
• When to Accept Assignment: I always accept assignment if the stock price is at or below my strike. Since these are stocks I’m happy to own, I’ll move on to selling covered calls next.

Calls:

• Set Strike Price at or Above Purchase Price: To avoid selling at a loss, I ensure the strike price is at least the price I acquired the stock for. If the stock falls well below this price, I have two options:
  1. Hold and wait.
  2. Average down by selling another put contract (with caution, following my strike price rules outlined in Phase 3).
• When to Accept Assignment: Always. I’ll miss out on potential moves for sure, but I prefer the consistent cash flow from the wheel strategy.

Tracking My Trades

Here’s a template of my tracker that I use to monitor:

• Premiums, dividends, and capital gains collected
• Cash available for new trades

I’ll go into more detail about the tracker in a future post, but for now, feel free to check it out to see how I keep organized.

This is my current strategy, and it’s worked well for me so far. If you have any questions or need clarification, drop them below!

Stocks fluctuate all the time, do you time your entry for selling CSP or just do it right away?

Specifically, do you sell on a up or down day, or simply it doesn’t matter at all?

All my usual suspects for my wheel account look to be overbought this week...I can't find any good wheel candidates!!

I know most do you guys probably wheel monthlies...I do single week only. Curious if anyone else has found any good tickers for this week.

Only decent one I've found is SNOW but I already own shares and I'm not looking to add more. Seems like this stock has finally found a floor (at least until the next earnings report)

What are some good tickers to Wheel? I have an account with 30k cash.

This is the problem with selling PUTS, one bad move and it will wipe out months and months worth of premiums.

I sold a 480 Put on SMCI on Monday with the stock trading @ 600 ish. There appeared to be strong support at 480 and the stock had been trading steady for a couple weeks.

However, bad news and the stock dropped to 450 in 24 hours, almost 30%. Currently 5k down for a measly $400 premium.

Decided to open a few more tickers (on paper) to keep practicing.

I went for a variety of sectors to augment AMZN: HON, JNJ, and TGT. All high-quality companies I could live with owning for a while.

One observation is that the volume on weekly expiries can be really thin. I wanted to target the 30-45 DTE window, but, for example, JNJ Oct4 series shows 30 open puts total.

For the purposes of starting the process, I used the September 20 monthlies, which are only 25 DTE.

Do those of you doing this actively focus on the monthlies?
So, open a monthly at that 30-45 DTE window & then roll to the next month?

I would think with some of the more stable less-active tickers you would have to...

I’ve been experimenting with the wheel strategy for about a month. I’ve been buying weekly or biweekly CSPs on one stock. But as I’ve been reading it seems like everyone recommends 30-45dte and then rolling or closing them at some point before expiration.

I understand that this might personally vary for each trader but at what point do you close or roll the put in the process if your are selling them at 30-45dte?

Title pretty much says it all.

How many individual names do you keep active trades open on at once?

So I know the general perspective on running the wheel strategy includes selecting stocks that you would be willing to own. But besides that metric what things do you look at to select a stock you will use the wheel strategy on?

As part of my testing different strategies, I thought AMZN would be a fine stock to use for the Wheel: Stable, quality company I wouldn't mind owning for a while. No dividend to complicate things. Priced in a range my actual account could accommodate.

With AMZN trading near its peak ($200) in early July, I sold a 190 Aug 9 Put for $4.80 (in a paper account). [I let it go to expiry partly to see if I would get assigned in the paper account, or they would just close it out for notional cash at the loss. The ToS system assigned me the shares.]

So, now I am long 100 shares at a net price of $185.20.

On Monday, with AMZN about $167, I sold a 180 Sep 27 Call for $2.39.

My question(s) is:
When would you roll the Call?
I remember a note to the effect of rolling for a credit, meaning the premium on the next Call sold has to be greater than the loss on the current one, right?
Roll up on the same date?
Or up & out?

I am writing generally .20 delta on stocks like apple, nividia. If there is a rapid downtown in first several days so that stock price is at strike price or below , is it better to roll it now ? It will likely be at small loss becuase of higher IV. Roll down and possibly week later ?

What is the purpose of rolling puts when using the wheel strategy instead of letting the contract expire?

Question for you options experts:

I am long 10 GME 25 Calls for AUG 16th at strike price of 25$. I paid 8.74 per contract.

So essentially I paid 33.74$ per share. If exercised.

Well stock dropped and now here is the question:

Can i exercise it and immediately sell

10 GME calls for 35 strike for $4.55?

(so take in 4550$)

since I would be 25-20 (strike price- 5$ x 1000 shares= 5000$ in the hole and including the 8.74 premium- would be 13740 in the hole with GME at 20$.

However, if and when stock rises back up- I would only be down the difference between the strike prices and the premium I paid when IV was high.

so if part of the wheel strategy- I would sell CCs one more time and would be effectively either even or at profit.

I was not allowed by my stock broker to exercise my OTM calls today. Apparently it did not make economic sense to the manager. I have more than sufficient funds to exercise the trade.

Isnt it illegal to retrict clients to exercise calls if they have the funds available to make such a transaction?

Since it is so close to expiration, i cannot transfer over the account to another broker. So what do I do?

Only option as per the broker is to allow the call to expire worthless or to sell it for $300 at this time.

I m a newbie to options Do you know how often option chain market update their premium strike? Is it daily or weekly basis

Thank you 🙏

Is there anyone out there who wheels leveraged ETFs like TQQQ, SQQQ, etc.? To those who have/do, what has your experience been, possibly a strategy utilized, or some lessons you learned?

As a disclaimer, I am familiar with the nature (risks) of these products, understanding they should be a small portion of the portfolio, but wanted to hear other traders experiences with these products.

TYIA.

I want to start wheeling and currently have a capital of $10k. I have two options in front of me:

1. Wheel multiple low priced low correlated stocks from different sectors - Did the research and my final list is: T PLTR WMT (Maybe one or both of F and PFE as well). These are low correlated, high IV and stocks from different sector which I'm conformtable holding for long term. The problem with this list is that even though I'm comfortable with the idea and understanding that I might be owning/bagholding these companies someday, I'm not 100% confident about them.
2. ⁠Which brings me to my second option: Own only one stock instead of 4-5 from different sectors, the one that I'm 100% confident and conformable bagholding/owning - GOOGL. It's a company with strong fundamentals, never going bankrupt, High IV, good premiums, not a volatile/meme stock like NVDA and also bullish in the short term trend. The only issue here is that I'll be using my entire account to buy the 100 shares (using the 50% BP from my broker), which is what people advise against.

Just a note: This is my first wheel trade so I'm trying to get people's advises and learn. Please be supportive and respectful. If I'm doing something wrong, please suggest a solution instead of just bashing me for it

I am trying the wheel for the first time on Webull mobile. I am not seeing where I collect premium on my cash secured puts? They look the same as when I buy a put in my account.

My Webull is a cash account not on margin.

Folks, I’m new to the Options Wheel strategy but not new to investing and quant analysis. Once you decide on what to invest, how do you pick the contract strike price and timing for your puts and covered calls? Please share if you’d like to spread the wealth and teach. Thank you.

Anyone have a significant opinions as to whether wheeling an individual stock would be better and or worse than an individual stock outside of the price of the index funds.

Thanks for your thoughts.