Wheel Strategy

The wheel strategy (also called the triple income strategy) is a popular options income approach that rotates between two phases. In phase one, the trader sells cash-secured puts on a stock they are willing to own at a lower price, collecting premium while waiting. If the put expires worthless, the trader keeps the premium and sells another put. If assigned, the trader takes delivery of the shares at the strike price (effectively buying at a discount including the premium received). In phase two, the trader sells covered calls against the acquired shares, collecting additional premium. If the calls expire worthless, the trader sells more calls. If called away, the trader sells the shares at the strike price, pockets the premium, and returns to phase one. The wheel generates income from three sources: put premiums, call premiums, and potential dividends while holding shares. It works best on quality stocks the trader would happily own long-term, with moderate volatility and solid fundamentals. Risks include sharp declines in the underlying during the ownership phase and opportunity cost from capping upside with covered calls.