The wheel strategy
StrategyLevel: IntermediateStep 13 of 13 in Start here
The wheel strategy is a rotation between two positions on one stock. Cash-secured puts are sold until one is assigned, then covered calls are written on the shares until they are called away, and the rotation starts again.
Key points
- The wheel is a cash-secured put followed, after assignment, by a covered call. It adds no position of its own to these two.
- Each step collects a premium, and each step caps the gain at that premium plus a limited move of the stock.
- The loss is the loss of the shares, less the premiums collected. A stock that falls far and stays down stops the wheel.
- The evidence found for this page measures its two halves, written on an index. It does not measure the wheel on single stocks.
At a glance
| Outlook | Neutral to moderately bullish on a stock the investor is willing to own for a long time |
|---|---|
| Setup | Sell 1 cash-secured put. After assignment, write 1 covered call on the 100 shares |
| Maximum gain | In each step, the premium, plus the rise of the shares up to the call strike once they are owned |
| Maximum loss | The put strike less all premiums collected, per share, with the stock at $0 |
| Break-even at expiration | The put strike less all premiums collected so far |
| Time decay | Works for the position in both steps |
| Volatility | A rise in implied volatility works against the open option and raises the next premium |
| Assignment risk | Assignment is part of the cycle, and it can come on any business day |
| Capital needed | The put strike times 100, in cash first and in shares after assignment |
On this page
The wheel strategy joins two positions that are described on their own pages: the cash-secured put and the covered call. What the wheel adds is the order in which they follow each other. The Options Industry Council describes it as a rotation between the two, typically with 100 shares per option contract, and has no strategy page of that name.
What the wheel strategy is
The wheel has two states and moves between them by assignment.
| State | Position | It ends when |
|---|---|---|
| Cash | A cash-secured put is open, or the next one is about to be sold | The put is assigned, which leads to the state of shares |
| Shares | 100 shares are owned and a covered call is open, or the next one is about to be written | The call is assigned, which leads back to the state of cash |
A put that expires worthless is followed by another put. A call that expires worthless is followed by another call. One round of the wheel is complete when shares that were bought through a put have been called away.
How the wheel strategy makes and loses money
In the state of cash the result is the one of a cash-secured put: the premium at most, and a loss that grows as the stock falls below the break-even.
In the state of shares the result is the one of a covered call on shares bought at the put strike. All premiums collected so far lower the net cost of the shares.
- Cash-secured put
- Shares and covered call
| Stock price at expiration | Cash-secured put, per share | Cash-secured put, per contract | Shares and covered call, per share | Shares and covered call, per contract |
|---|---|---|---|---|
| $35 | -$13.50 | -$1,350 | -$12.50 | -$1,250 |
| $47.50 | -$1 | -$100 | $0 | $0 |
| $50 | +$1.50 | +$150 | +$2.50 | +$250 |
| $52 | +$1.50 | +$150 | +$4.50 | +$450 |
| $52.50 | +$1.50 | +$150 | +$5 | +$500 |
| $65 | +$1.50 | +$150 | +$5 | +$500 |
Example of one round of the wheel strategy
What happens to the wheel strategy before expiration
At every moment one option is open, and it behaves as it does on its own. A written put or call loses value as time passes, which works for the position, and gains value when implied volatility rises, which works against it.
The stock decides the rest. In the state of cash a fall of the stock makes the put more expensive to buy back. In the state of shares a fall of the stock is a loss on the shares that the call softens only by its premium.
What happens when the wheel strategy is assigned
Assignment is how the wheel moves, and it is not a failure of the position. An assigned put turns cash into 100 shares at the put strike. An assigned call turns the shares back into cash at the call strike.
Assignment can come before expiration. An early assignment of the put starts the state of shares sooner. An early assignment of the call, most often before an ex-dividend date, ends the round and the shares do not receive that dividend.
How the wheel strategy is managed
Three choices are made again at every step.
| Choice | What it decides |
|---|---|
| The stock | The whole downside of the position. The wheel owns the stock whenever the stock has fallen |
| The strike price | How likely assignment is and how large the premium is. A strike closer to the stock price pays more and is assigned more often |
| The strike of the call against the cost of the shares | Whether being called away ends the round with a gain. A call strike below the net cost of the shares sells them at a loss |
When the stock has fallen well below the net cost of the shares, no call at or above that cost pays a premium worth writing. The position is then a holding of shares that waits.
What the evidence says about selling options month after month
No measurement of the wheel on single stocks, by an exchange or in a journal, was found for this page. What was found is evidence on its two halves, from two indexes that Cboe computes. The PUT index sells a one-month put at the money on the S&P 500 every month, against Treasury bills. The BXM index holds the S&P 500 and writes a one-month call at the money on it every month.
| Index | Period | Return per year | Volatility | Largest fall |
|---|---|---|---|---|
| PUT, puts sold on the S&P 500 | 3 January 2007 to 31 August 2026 | 7.1% | 10.7% | -32.7% |
| S&P 500, dividends included | The same | 11.0% | 15.4% | -50.9% |
| BXM, calls written on the S&P 500 | 20 June 1986 to 31 August 2026 | 8.6% | 10.7% | -35.8% |
| S&P 500, dividends included | The same | 11.2% | 15.2% | -50.9% |
Over these periods both indexes moved less than the S&P 500 and fell less at the worst, and both returned less. They lag most in strong years: in 2013 the S&P 500 returned 32.4%, the PUT index 12.3% and the BXM index 13.3%. They still lose when the market falls: in 2022 the PUT index lost 7.7% and the BXM index 11.4%, against 18.1% for the S&P 500.
These figures say less about the wheel than they seem to. Both indexes write options on an index of 500 stocks, which are settled in cash, so no shares are ever assigned. A single stock moves more than the index and can fall much further. And the fact sheets state that figures from before the launch of an index may be back-tested.
What can go wrong with the wheel strategy
The gains are capped at every step and the losses are not. A round that works pays a few percent. A stock that falls by half costs most of the capital in the position, less the premiums.
The wheel concentrates on one stock, and it buys that stock when it has fallen. If the fall has a cause that lasts, the shares are owned for a long time at a loss, and the capital cannot be used elsewhere.
Regular premiums can hide the risk. Many small gains in a row say little about the position, because the outcome that matters, a large fall of the stock, is rare and is large when it comes.
Every step is a trade with a cost. Commissions, fees and the spread between the bid and the ask are paid on each put and each call, and they take a visible part of small premiums.
Questions and answers
Is the wheel strategy a way to earn a steady income?
No. The premiums arrive regularly and the losses do not. The position holds the downside of the stock at every step, so one large fall can cost more than the premiums of many cycles. What is collected is a payment for carrying that risk.
What happens to the wheel when the stock falls far below the put strike?
The put is assigned and the shares are owned at a loss. Calls with a strike price at or above the cost of the shares then pay little or nothing, and calls with a lower strike price can sell the shares at a loss. The cycle waits until the stock recovers, which can take a long time or not happen.
Terms used on this page
- Wheel strategy
- A rotation between two positions on one stock. Cash-secured puts are written until one is assigned, then covered calls are written on the shares until they are called away, and the rotation starts again.
- Cash-secured put
- A put that is sold while the seller keeps enough cash to buy the shares at the strike price if the put is assigned.
- Covered call
- A call written against 100 shares that the writer owns. The shares are delivered at the strike price if the call is assigned. It is called a buy-write when the shares are bought at the same time, and an overwrite when the call is written on shares already held.
- Assignment
- The notice to the writer of an option that a holder has exercised it, which obliges the writer to deliver (a call) or to buy (a put) the shares at the strike price.
- Called away
- What happens to shares when a call written against them is assigned. They are delivered to the holder of the call at the strike price.
- Cost basis
- What a position cost, per share. Shares bought through an assigned put are paid for at the strike price, and the premium received for the put lowers their cost - the strike price less the premium.
- Premium
- The price of an option, quoted per share. One standard contract covers 100 shares, so a premium of $1.50 is $150 per contract.
Sources
- June Office Hours FAQs: IV Statistics, Position Management, and the Wheel Strategy, The Options Industry Council (read 29 September 2026). Article of June 2026.
- Cash-Secured Put, The Options Industry Council (read 29 September 2026).
- Covered Call (Buy/Write), The Options Industry Council (read 29 September 2026).
- Options Assignment, The Options Industry Council (read 29 September 2026). Frequently asked questions.
- Cboe S&P 500 PutWrite Index (PUT): fact sheet, Cboe Global Markets (read 29 September 2026). As of 31 August 2026.
- Cboe S&P 500 PutWrite Indices Methodology, Cboe Global Markets (read 29 September 2026). Version 3.1 of September 2026.
- Cboe S&P 500 BuyWrite Index (BXM): fact sheet, Cboe Global Markets (read 29 September 2026). As of 31 August 2026.
- Cboe BuyWrite Indices Methodology, Cboe Global Markets (read 29 September 2026). Version 6.0 of May 2026.
- Historical Performance of Put-Writing Strategies, Oleg Bondarenko, published by Cboe (read 29 September 2026). Study of 2019, funded by Cboe.