The Wheel Strategy

The wheel strategy (also called the triple income strategy) combines cash secured puts and covered calls in a continuous cycle.

How the Wheel Works

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Phase 1: Cash Secured Put

  • Sell a cash secured put on a stock you want to own
  • Collect premium
  • If not assigned, repeat
  • If assigned, move to Phase 2

    • Phase 2: Stock Ownership

  • You now own 100 shares (at a discount due to put premium)

    • Phase 3: Covered Call

  • Sell a covered call against your shares
  • Collect premium
  • If not assigned, repeat covered calls
  • If assigned, you sell shares at a profit
  • Return to Phase 1

    • Example: The AAPL Wheel

    Month 1: Sell $220 put, collect $3.50

  • AAPL stays at $225 → Keep $350, sell another put

    • Month 2: Sell $220 put, collect $3.00

  • AAPL drops to $215 → Assigned at $220

    • Effective cost basis: $220 - $3.50 - $3.00 = $213.50

    Month 3: Sell $225 covered call, collect $4.00

  • AAPL rises to $222 → Keep $400, sell another call

    • Month 4: Sell $225 covered call, collect $3.50

  • AAPL rises to $228 → Shares called away at $225

    • Profit: ($225 - $213.50) × 100 + $400 + $350 = $1,900

    Wheel Strategy Best Practices

  • Use high-quality stocks you want to own long-term
  • Consistent strike selection based on deltas
  • Don't fight assignment - it's part of the strategy
  • Track your actual cost basis including all premiums