The Wheel is the repeating two-step cycle that turns put-selling into covered-call income and back again.
The Two-Step Cycle
The Wheel rotates between selling cash-secured puts and selling covered calls on the same stock. Each leg produces premium; assignment simply moves you to the next leg.
Step 1 — Sell Cash-Secured Puts
Sell puts on a stock you want to own at a strike you are happy to buy. If the put expires worthless, you keep the premium and sell another. If you are assigned, you buy the shares at your chosen strike.
Step 2 — Sell Covered Calls
Once you own the shares, sell covered calls against them at a strike above your cost basis. If called away, you sell the shares at a profit and keep the premium — then return to Step 1.
Why It Works
The Wheel removes emotional decision-making by giving every outcome a next step. Assignment is not a loss — it is the planned transition from put-selling to covered-call selling.
Key Takeaways
- The Wheel is a cycle, not a single trade.
- Stock selection is the most important variable.
- Every outcome has a defined next action.