Wheel Strategy: How It Works, With Example
The wheel is not a single trade but a cycle that chains two strategies. You sell cash secured puts on a stock you would like to own and collect premium until you are assigned the shares. Then you sell covered calls on those shares and collect more premium until they are called away. With cash back in hand, the wheel turns again. Every premium you collect lowers your cost basis, so you are paid at every step.
How it works
- Sell a cash secured put on a stock you would be happy to own, keeping the strike times 100 in cash as collateral.
- If the put expires worthless, keep the premium and sell another one. Repeat until you are assigned.
- Once assigned, you own 100 shares at the strike. Sell a covered call against them, ideally at a strike above your net cost.
- Keep selling covered calls until the shares are called away. You are back to cash - start again with a new cash secured put.
When to use it
Use it on quality stocks you would be comfortable holding through a drawdown, in a market you expect to move sideways or grind higher. It suits investors who want steady premium income and are fine owning shares for a while instead of exiting every trade quickly.
Profit, loss and breakeven
Max profit
Per cycle: every premium collected, plus the call strike minus the put strike, times 100, when the shares are called away.
Max loss
The put strike minus all premiums collected, times 100, if the stock goes to zero while you hold the shares.
Breakeven at expiration
The put strike minus every premium collected so far. It drops with each put and call you sell.
Example trade
XYZ trades at $100. You sell the $95 put for $1.50 ($150) and XYZ ends at $94, so you are assigned 100 shares at $95 - a net cost of $93.50. You then sell the $100 call for $1.80 ($180), lowering your cost to $91.70. If XYZ closes above $100, the shares are called away and the cycle earns $830: $150 + $180 in premium plus a $500 stock gain, on $9,500 of capital.
Phase 1: Cash Secured Put on the Strategy Price Timeline
Phase 1 on a $100 stock with 35 days to expiration: the $95 put pays $1.50. Above $93.50 at expiration the trade profits; below $95 you are assigned the shares and move to phase 2.
Swipe to see full chart →Profit zone
Loss zone
Phase 2: Covered Call on the Strategy Price Timeline
Phase 2 on the shares assigned at $95: the $100 call pays $1.80. The chart counts only this call's premium; adding the $1.50 from the put, your real breakeven is $91.70.
Swipe to see full chart →Profit zone
Loss zone
Risks to know
- While you hold the shares, you carry the stock's full downside, cushioned only by the premiums collected.
- After a sharp drop, calls above your cost pay little, so you may wait a long time - or sell below cost and lock in a loss if called away.
- It ties up a lot of capital in one stock, and your upside is capped at the call strike if the stock rallies hard.
How EasyTrade manages it
EasyTrade does not send a separate wheel signal: each leg follows its own signal's rules. Cash secured put and covered call signals both close once 90% of the premium is captured; otherwise they are held to expiration. A put held to expiration that finishes below the strike is assigned - your cue to switch to the covered call side. Track your net cost basis across cycles so you never sell a call below it by accident.
Run an optimized wheel with EasyTrade signals
EasyTrade's cash secured put and covered call signals are the two halves of the wheel. Each one is scanned daily and ranked by EasyScore, probability of profit and return on capital. Combine them and every turn of your wheel starts from a data-driven trade, not a guess.
- Start with a cash secured put signal on a stock you would be happy to own. The signal gives you the strike, expiration, premium and capital required.
- If the put expires or is closed for a profit, take the next cash secured put signal - on the same stock or on whichever ticker ranks better that day. You are never locked into one stock.
- If you are assigned, switch to covered call signals for the shares you now hold, choosing a strike at or above your net cost so that being called away locks in a gain.
- Let each signal's exit rules close the leg early. Taking 90% of the premium ahead of expiration frees your capital to start the next cycle sooner - more turns of the wheel per year from the same cash.
Recent EasyTrade Cash Secured Put + Covered Call results
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