The Wheel Strategy Explained: Complete Guide

The wheel strategy combines selling cash-secured puts and covered calls in a repeating cycle that generates premium income regardless of market direction.

How It Works

Step 1: Sell a CSP

Sell a put on a stock you'd own. Collect premium. If it expires worthless (70-80% of the time), keep the money.

Step 2: Get Assigned

Stock drops below strike, you buy 100 shares. Your cost basis is reduced by the premium collected.

Step 3: Sell Covered Calls

Sell calls one strike above. Premium reduces cost basis further. Called away = profit. Not called = sell another.

Step 4: Capture Dividends

Collect dividends while holding shares. Bonus income on top of CC premium.

Step 5: Repeat

Called away? Restart with another CSP. Each cycle generates income from multiple sources.

Real Example: SBUX

CSP premium: $54. Assigned at $104.82. CC premium: $147. Dividend: $62. Called away gain: $118. Total: $381 = 3.6% in ~7 days.

Best Stocks

Liquid options, under $150, regular dividends. BAC, NKE, PYPL, SBUX, PFE, KO, T, INTC, CSCO, GM.