The Wheel — the Full Cycle

The loop

The Wheel is the systematic alternation between the two income strategies: (1) SELL a cash-secured put at a strike you want to own → (2a) expires worthless: keep premium, repeat. (2b) ASSIGNED: you buy 100 shares at strike (effective cost = strike − premium) → (3) SELL a covered call above your cost basis → (4a) expires worthless: keep premium, repeat step 3. (4b) ASSIGNED (called away): shares sold at the call strike — you exit with stock gain + all premiums → back to step 1. The wheel turns.

A worked cycle

Stock $100, want in at $95. Sell $95 put for $2 → assigned at $95 (effective cost $93). Sell $105 call for $2 → called away at $105. Cycle profit: $2 + $2 + ($105 − $95 stock gain) = $14/share on $9,500 secured = ~1.5%/month IF both legs fill. The honest math: in rising markets the covered-call leg fires often (you sell your winners); in falling markets the put leg assigns early (you catch the knife at your chosen level). The Wheel monetizes CHURN, not trends.

The selection is the strategy

Every Wheel authority agrees: the strategy is only as good as the UNDERLYING. Criteria: excellent fundamentals (days 15–21 — you must WANT to own it at the strike), adequate liquidity (tight options spreads), moderate IV (enough premium to matter, not so much the company is distressed), price range you can afford to secure ($5,000–$50,000 per contract typically), and NO earnings during the contract if you want to avoid binary gaps. The Wheel does not make bad companies good investments — it pays you to hold good ones.

Sources

• The Wheel Strategytastytrade
• Buy-Write / Covered CallCBOE education