The wheel is one of the most popular options income strategies because it is simple, mechanical and only ever runs on stocks you are happy to own. You loop between selling cash-secured puts and selling covered calls, collecting premium at every step and lowering your cost basis along the way.
Open the Cash Secured Put calculator →Step 1 — Sell a cash-secured put on a quality stock you would like to own, choosing a strike at or below a price you consider fair value. You keep the premium immediately. If the stock stays above the strike at expiration, the put expires worthless and you simply sell another one.
Step 2 — If the stock falls below the strike, you are assigned and buy 100 shares at the strike price. Because you already collected premium (often across several puts), your effective cost basis is lower than the strike.
Step 3 — Now that you own shares, sell a covered call above your cost basis. Collect more premium; if the stock rises through the call strike, your shares are called away at a profit and the wheel starts over with a fresh cash-secured put.
You are paid premium continuously — whether you are waiting to buy (selling puts) or waiting to sell (selling calls). That steady income is the main appeal.
Each assignment and each premium lowers your effective cost basis, which gives you a cushion against moderate declines and a clear, repeatable set of decisions rather than constant guessing.
The wheel does not protect against a large decline. If the stock drops far below your basis, you are holding shares worth much less than you paid, and the call premiums you collect may be small comfort.
Your upside is capped whenever you sell covered calls, so a sudden rally can leave your shares called away well below the new price. Only run the wheel on stocks you would be comfortable holding through a drawdown.
Enough cash to buy 100 shares at the put strike. For a $50 strike that is roughly $5,000 set aside per contract, which is what makes the put "cash-secured".
That is fine — you keep collecting put premium each cycle and simply never reach the covered-call stage. Many wheel traders prefer this outcome.
It is defined and mechanical, but not risk-free. Your maximum risk is essentially owning the stock, minus the premium collected, so a sharp decline can still cause a sizeable loss.
Educational use only. Quotes are delayed ~15 minutes and nothing here is financial advice. Options trading involves substantial risk of loss. Privacy · Terms.