Wheel Strategy Calculator
Model the cash-secured put + covered call wheel. See premium income, annualized return, break-even, and assignment scenarios.
Stock & Position
Cash-Secured Put Leg
Covered Call Leg
How the Wheel Strategy Works
The wheel strategy is an options income strategy that cycles between selling cash-secured puts and covered calls. It's designed for stocks you'd be happy owning at a lower price — you get paid premiums while waiting for the price you want.
Step 1: Sell a cash-secured put below the current stock price. Collect the premium. If the stock stays above your strike, the put expires worthless and you keep the premium. Repeat. Step 2: If the stock drops below your strike, you get assigned — you buy 100 shares at the strike price (minus the premium you collected). Step 3: Now sell covered calls above your cost basis. Collect more premium. If the stock rises above your call strike, shares get called away at a profit. Then go back to Step 1.
The wheel works best on stocks with moderate implied volatility, stable fundamentals, and prices you'd be comfortable holding. Think blue chips, large ETFs, or dividend payers. It does NOT work well on volatile growth stocks that can gap down 30% overnight.
This calculator models both legs of the wheel — put premium and call premium — to show your total income per cycle, annualized return on capital, break-even price, and what happens in different scenarios. The annualized return assumes you can repeat the cycle consistently, which depends on market conditions.
Formula
Annualized Return = (Put Premium + Call Premium) × (52 ÷ (Weeks per Cycle × 2)) ÷ Capital Required × 100
Example
You want to run the wheel on a $50 stock using 100 shares.
Sell the $48 put for $1.50/share = $150 premium (4 weeks). Stock stays above $48, put expires. You keep $150. Now sell the $48 put again — or if assigned, sell the $52 covered call for $1.20/share = $120 premium.
Total premium per full cycle: $150 + $120 = $270. Capital required: $4,800. Cycle length: 8 weeks. Annualized: ~$1,755/year = 36.6% return on capital.
Frequently Asked Questions
Is the wheel strategy profitable?
The wheel can generate consistent income in sideways or slightly bullish markets. Typical annualized returns range from 15-40% on capital. The risk is a significant stock decline — you'd hold shares at a loss until covered calls bring you back to breakeven. It's not a get-rich-quick strategy; it's a steady income strategy.
What is the best stock for the wheel strategy?
Ideal wheel stocks have: moderate implied volatility (higher premiums), stable price action (less assignment risk), strong fundamentals (you'd own the stock anyway), and price per share you can afford in 100-share lots. Popular choices include large ETFs like SPY, QQQ, and IWM, or blue chips like AAPL, MSFT, and KO.
How much capital do I need for the wheel strategy?
You need enough cash to buy 100 shares at the put strike price. For a $50 stock, that's $5,000. For a $200 stock, that's $20,000. Many traders start with lower-priced stocks ($20-50 range) to keep capital requirements manageable. Some brokers allow selling puts on margin, but this adds risk.
What happens if the stock crashes during the wheel?
If the stock drops significantly below your put strike, you'll be assigned shares at a loss. The premiums you've collected provide a cushion, but a 30%+ drop can exceed that cushion. This is the main risk. Never run the wheel on a stock you wouldn't hold through a downturn.
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Disclaimer: This calculator is for educational purposes only and does not constitute financial advice. Trading involves substantial risk of loss. Past performance does not guarantee future results. Always do your own research and consult with a licensed financial advisor before making investment decisions.