The Wheel Options Strategy is a methodical way to generate semi-passive steady income throughout the year. It looks to reduce your cost basis by collecting option premiums through cash-secured puts and covered calls, plus dividend payments if possible.

It works best on blue chip stocks that are stable and don’t have a lot of wild swings. However, it is not foolproof and takes time to master.

Stock Selection

The Wheel Options Strategy, also known as the Triple Income Strategy, is a simple but effective options trading strategy that generates three streams of income. This option strategy combines cash-secured puts, straddles and covered calls to maximize premium income while minimizing risk.

The first step in this strategy is to select a stock that you would like to own over the long term. Ideally, you will choose a stock that is at least 5-10 years old and has been a good buy/hold for a period of time.

Next, you will sell cash-secured puts against the stock you want to own. Each CSP sold earns you a net credit that reduces your cost basis throughout the duration of your option contract.

When the underlying stock price approaches the strike you purchased your options for, you will sell covered calls against the stock until it is called away or your position is closed. This will recoup any losses you may incur from the cash-secured put option you sold.

Puts

The Wheel Options Strategy is a long-term option trading technique that involves selling cash-secured puts and covered calls on stocks you want to own. It can be a great way to generate monthly income without the need for complicated multi-leg strategies.

Puts are an important part of the Wheel Strategy because they allow investors to collect premiums while waiting for a stock to be assigned. However, they can also be risky because they may not be assigned at the price you choose.

The Wheel Strategy can be a great income producing option trade if you have the capital to make it work. You will need to decide how much you can afford to risk and how much equity you want to own.

Calls

The Wheel Options Strategy is a systematic trading method that involves repeatedly selling cash-secured put and covered call options to generate consistent option premiums. This is a great way to collect income as part of your long-term trading plan.

You start by selling a cash-secured put (CSP) to collect the initial premium. If the option gets assigned, you have to buy 100 shares of the stock at that price before the expiration date.

After this, you continue to sell short calls and collect premium until the net stock cost basis is below the current stock share price. If the stock price increases slightly, you can keep the premium and sell another call option for the next expiration to reduce the position’s net cost basis further.

The Wheel Options Strategy can be risky if the stock price drops significantly, but it should produce consistent returns if executed properly. It is a good strategy for small or large accounts.

Expiration

The Wheel Options Strategy involves selling cash secured put options with short expiration dates to generate income. This strategy can be used to generate a stable source of income while maintaining ownership of the underlying asset.

The underlying asset can be any stock or ETF, but it’s recommended to choose stocks with strong fundamentals and high quality ratings. These stocks are typically the ones with large dividends, low volatility and higher average annualized returns.

Another important consideration is the strike price of the option. The optimal strike for this strategy should be close to the underlying stock’s current price, but still above its cost basis.

Theta decay can also be beneficial for this strategy, as it reduces the value of the option premiums. This helps to keep the option premium above its strike price until it expires.