Wheel Income
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The options wheel strategy, in plain English

A short, no-jargon explainer of cash-secured puts and covered calls. Skim the cycle diagram, then read the walkthrough.

The big idea

The wheel is a way to get paid for being patient. Instead of buying a stock at today's price, you tell the market "I'd buy 100 shares at a lower price I'd be happy paying." The market pays you upfront for that promise. If the stock never drops to your price, you keep the cash and repeat. If it does drop, you get the shares — and now you flip the script: you tell the market "I'd sell these 100 shares at a higher price I'd be happy taking," and the market pays you upfront again.

That's it. Two promises, two payments, on repeat.

The cycle
1

Sell a put — You collect cash up front

You set aside cash to back the promise (strike × 100). In return, someone pays you a premium for the right to make you buy. Picking a strike below today's price means you're saying "I'll only buy at a discount."

Walkthrough with real numbers
Adjust the numbers
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1

Sell a cash-secured put

+$150.00

You promise to buy 100 shares at $720 by expiration. The market pays you $1.50/share × 100 = $150.00 upfront. You set aside $72,000 in collateral — a 0.21% RoC for the week.

Stock stays above $720
The promise expires worthless. You keep $150.00, keep your cash, and sell another put next week. Repeat step 1.
Stock falls below $720
You’re assigned: $72,000 leaves your account, 100 shares arrive at $720/share. Effective breakeven: $718.50 after the premium. Move to step 2.
2

Sell a covered call

+$200.00

Now you own 100 shares. You promise to sell them at $725 by expiration. The market pays you $2.00/share × 100 = $200.00 upfront. The shares back the promise — that’s the “covered” part.

Stock stays below $725
The promise expires worthless. You keep $200.00, still own the shares. Sell another call next week. Repeat step 2.
Stock rises above $725
Shares are called away: 100 shares leave, $72,500 arrives.
Put premium collected+$150.00
Call premium collected+$200.00
Capital gain (725 − 720) × 100+$500
Total on $72,000+$850.00 (1.18%)
Back to step 1.
Why people like it
  • You only sell promises on stocks you'd be happy owning. The worst case isn't catastrophic — it's holding a company you already wanted.
  • Premium income is real cash flow. Even in a flat market, you're collecting payments for setting price levels.
  • It's mechanical. The same simple loop applies week after week — no need to predict direction, just pick strikes you'd be okay with.
What can go wrong
The stock keeps falling

You get assigned at $720, but SPY drops to $650. You're stuck holding shares that are now worth less than your cost basis. You can keep selling covered calls while you wait, but selling them below your cost basis would lock in a loss if called away. This is the main risk: the wheel works best on stocks you're okay holding through drawdowns.

The stock rockets up

You collect the put premium but miss the rally — you didn't own shares while it ran. After assignment, your covered call caps your upside at the strike. You won't go broke, but you can underperform a buy-and-hold investor in a strong bull move.

Liquidity and assignment timing

Bid/ask spreads on illiquid options eat into your premium. Early assignment is rare for cash-secured puts and covered calls but can happen, especially around dividends and earnings.

Terms you'll see in this app
CSP
Cash-Secured Put — sell a put, set aside cash equal to strike × 100 per contract.
CC
Covered Call — sell a call against 100 shares you already own.
DTE
Days to expiration. Most wheel trades target 1–6 weeks.
Premium
The cash you receive upfront for selling the option. Quoted per share; multiply by 100 for one contract.
Strike
The price at which the buyer can exercise. For CSPs, this is the price you'd buy at; for CCs, the price you'd sell at.
Collateral
What backs your promise. CSP: cash equal to (strike − premium) × 100. CC: the 100 shares themselves.
RoC
Return on Collateral = premium ÷ collateral-per-share. The per-trade return.
Annualized
RoC × (365 ÷ DTE). Lets you compare a 7-day trade vs a 30-day trade on equal footing.
IV
Implied Volatility. How much the market expects the stock to swing — higher IV means richer premiums (and bigger price moves).
Delta
How much the option price moves for a $1 move in the stock. For short puts, |Δ| roughly equals the probability of getting assigned.
Score
Annualized × (1 − |Δ|). A risk-adjusted ranking — penalizes high-assignment-risk trades.
Roll
Close one position and open a new one (later expiration, different strike) in a single transaction. Useful for buying time when a trade goes against you.
Where to start
  1. Add a few tickers you'd be happy owning to your watchlist. Set a max collateral per ticker so the screener only shows strikes you can actually back.
  2. Click a ticker to open the screener. Look at the price chart and the candidate scatter — high annualized + low |Δ| is the sweet spot.
  3. Pick a CSP and click Log to record it as a paper trade. Track marks and P&L on the Positions page.
  4. When something expires worthless, repeat. When you get assigned, sell a covered call against the new share lot.

This app is paper-trading only. None of the above is financial advice — the wheel can lose real money on real accounts.