So, you want to generate some extra income with a simply options strategy? Enter the Wheel strategy. It’s one of those options strategies that sounds complicated until you realize it’s basically just a merry-go-round for selling options. It’s a way to collect premium while you wait for the market to do its thing.
How the Wheel Strategy Works
In a nutshell, the Wheel strategy is a rinse-and-repeat process involving two main moves: selling cash-secured puts and then selling covered calls. You start by selling puts on a stock you wouldn’t mind owning. If the stock gets put to you (meaning you have to buy it), you turn around and sell covered calls on the shares you now own. Rinse, repeat, and collect premiums along the way.
So why jump on the Wheel? Simple: it’s all about generating income. Every time you sell a put or a call, you collect a premium. Think of it as earning rent on your cash (when you sell puts) or on your shares (when you sell calls). It’s a way to squeeze income out of the market even if the stock doesn’t make a big move.
Here’s how the Wheel strategy might look in practice:
Of course, there’s no free lunch. The Wheel has its risks. If the stock drops below your put strike, you’ll be buying shares — maybe when the stock is tanking for a good reason. And when you sell covered calls, you cap your upside. If the stock skyrockets, you might have to sell your shares at the strike price, missing out on bigger gains.
The Takeaway
So that’s the Wheel strategy in action. It’s a way to generate income from options premiums while potentially buying stocks at a discount and selling them at a profit. Just remember: it’s not a free lunch, but it can be a steady way to earn “rent” on your cash and shares if you’re comfortable with the risks.
Good investing!
Greg Patrick
