The Wheel Strategy
The wheel strategy is a simple, repeatable way to generate income using options. It’s perfect for beginners who want to slowly build a portfolio and get paid along the way.
Here’s how it works:
Step 1: Sell a cash-secured put – You pick a stock you’re okay owning and sell a put option at a price you’d be happy to buy it. If the stock stays above that price, you keep the premium (money) and do it again next week/month. If the stock drops below that price, you buy the stock — at a discount.
💰 You’ll need enough cash on hand to potentially buy 100 shares of the stock, since owning them is required to sell covered calls. In my case, I’m setting aside $10,000 in capital to be ready if I get assigned.
Step 2: Sell a covered call – Now that you own the stock, you start selling call options on it. This means you’re agreeing to sell it if the price goes above a certain level. If it doesn’t, you keep the stock and the premium. If it does, you sell the stock at the agreed price and keep the premium. Win-win.
Step 3: Repeat the wheel – Once the stock is sold, you go back to Step 1 and start over!
Resources
If you’re new to options trading, definitely take some time to learn the basics and open a brokerage account that offers paper trading so you can practice without risking real money.
1. Learn Option Trading
Head over to Option Alpha website to learn more about the wheel strategy and options trading in general — they’ve got tons of helpful YouTube videos too! We’re lifetime members and highly recommend it.
I used to listen to Kirk’s podcast on my two hours drive to work everyday!
2. Brokerage Account
To trade options, you’ll need a brokerage account that supports options trading. We use TastyTrade which has a user-friendly interface. They also offer free option trading content and videos.
You can even trade options in an IRA or other non-taxable accounts, as long as you have the right permissions enabled (usually just a quick application within the platform).
3. Capital Reserve
If your put option gets assigned, make sure you have enough funds in your account to buy the underlying stock at the strike price.