PUT
~0.30 Δ
STEP 1: SETUP — PICK THE UNDERLYING
- Choose a stock or ETF you would be happy to own at a specific strike. You will own it eventually.
- Criteria: liquid options (tight spreads), stable trend, affordable at 100 shares, decent IV.
- Pick a strike below current price you'd accept as a buy-in.
- Verify capital: strike × 100 held as cash collateral per contract.
STEP 2: THE WHEEL — FOUR PHASES
PURPLE · FORCED TRANSITION (ITM)
GREEN · PREMIUM LOOP (OTM)
STEP 3: EXECUTION — THE TWO CONTRACTS
▼ PHASE A · CASH-SECURED PUT
Get paid to wait for the buy-in.
SETUP
Stock you'd own · stable/uptrending · liquid chain
STRIKE
Below current · delta ~0.30
DTE
30–45 days to expiration
COLLAT.
Cash = strike × 100 per contract
OTM
→ keep premium, sell next put
ITM
→ take assignment at strike
▲ PHASE B · COVERED CALL
Get paid while holding the shares.
SETUP
Own 100 shares from assignment
STRIKE
Above cost basis · delta ~0.30
DTE
30–45 days to expiration
COLLAT.
100 shares held per contract
OTM
→ keep premium, sell next call
ITM
→ shares called away, restart
STEP 4: MANAGEMENT
Discipline lives in the middle of the trade, not at entry.
- Close at 50% max profit — roll into the next cycle.
- Roll down & out on threatened puts to avoid assignment you don't want.
- Roll up & out on threatened calls to raise the call-away strike.
- Skip earnings weeks (or size down — IV is a trap).
- Never sell a covered call below your cost basis.
STEP 5: WHEN TO USE
✓ IDEAL
- Income-focused, cash-rich accounts
- Blue-chips / broad ETFs
- Stable or mildly bullish outlook
- You'd happily own the stock
✗ AVOID
- Small accounts (< 1 lot of capital)
- Falling knives / story stocks
- Earnings weeks (unless sized for IV)
- Chasing the highest premium
STEP 6: RISK MANAGEMENT
Max loss = stock to zero after assignment. The premium collected is your only buffer — size so one bad wheel won't sink the account.
DIVERSIFY
3–5 TICKERS
MAX / TICKER
≤ 25% CAPITAL
RESERVE
20% CASH
When the wheel breaks, it breaks hard. Reserve capital lets you roll, average, or exit without becoming a forced seller.