The wheel is a four-step cycle of selling puts and calls on a stock you're comfortable owning — collecting time-decay premium whichever way the price moves, in exchange for a capped upside.
A four-step cycle you repeat on a stock you're comfortable owning — collecting a premium at every turn.
Below the market price. Collect premium immediately.
Only if price falls below your strike at expiration.
Above your cost basis. Collect another premium.
Shares sell at a gain; the wheel starts again.
Sell a put below the market. If the stock stays above your strike, you simply keep the premium — the put expires worthless.
Downside is real below the strike — but the premium gives you a cushion before you're at a loss.
Assignment isn't a failure state. Your effective cost basis is the strike minus the premium you already banked — usually below where the stock was trading when you opened the trade.
From here, the position converts from a put seller into a covered-call writer — step 2 of the wheel.
Now holding the shares, sell a call above your cost basis. If the stock stays under the strike, you keep the premium and the shares — and can sell another call next cycle.
Upside above the strike is capped — the trade-off for premium income and downside cushion.
Shares are sold at the strike. You walk away with the stock's gain to that price plus both premiums collected along the way — then you're free to sell a new put and begin again.
Sell a new cash-secured put on the next cycle — the wheel keeps turning.
Combined premium shifts the whole payoff up — a cushion in flat or falling markets — but the covered call still caps the top.
The wheel loses less — premium cushions the drawdown at every price.
The wheel earns more — premium stacks on top of the stock's own gain.
The wheel is capped — upside beyond $110 belongs to the option buyer.
Premium cushions losses — it doesn't cap them. A sharp drop below your strike still costs you.
Once called away, gains above the call strike belong to the option buyer, not you.
Cash-secured puts and owned shares lock up capital for the life of each contract.
Illiquid names widen spreads and complicate rolling or closing positions early.
Roughly a 70–80% chance of expiring worthless — enough premium without inviting constant assignment.
Theta decay accelerates in this window; shorter dates chase pennies, longer ones tie up capital.
Assignment is a feature, not a bug — pick names you're comfortable holding through a drawdown.
Cash-secure the full strike value; don't let one name dominate the portfolio.
Selling cash-secured puts collects premium while you wait for a lower entry — assignment hands you the stock at a discount.
Selling covered calls on shares you own collects premium while you wait for a higher exit — at the cost of a capped upside.
The combined premium cushions drawdowns and adds yield in flat markets, but it will underperform a runaway rally.