What Is the Wheel Strategy
The Wheel is a three-phase, income-generating options strategy. You sell a cash-secured put, potentially get assigned stock, then sell covered calls against those shares until they're called away. Then you start over. Done correctly across 8 staggered positions, it generates consistent weekly income.
The Three Phases
Buy 100 shares @ $5.10 = $510 cost. Sell $5.50 covered call @ $0.35 = $35 premium collected. Net cost basis = $4.75. If called at $5.50: $5.50 – $4.75 = $0.75 gain per share = $75 = 11.6% in 8 days.
Why the Wheel Works
The Wheel generates income in three ways simultaneously: premium from selling puts (Phase 1), premium from selling covered calls (Phase 3), and capital gains if shares are called away above your cost basis (also Phase 3).
The key: you only run the Wheel on stocks you're willing to own at the put strike price. If assignment happens, you're not stuck with a bad stock — you deliberately chose that stock and that price as acceptable ownership. Pass 1 (CSP Entry Scanner) enforces this quality requirement before you ever sell the first put.
The Critical Rule: "Would I Hold 30 Days If Assigned?"
From the Tactical Covered Call workflow: before selling any put, ask yourself honestly — if this stock dropped to my put strike and I was assigned 100 shares, would I be comfortable holding those shares for 30 days while I sell covered calls to reduce my cost basis?
YES → sell the put. NO → do not start the wheel on this stock.
This question is Gate 2 + Gate 5 combined for the Wheel. It forces structural and thesis clarity before any premium is collected.
The Wheel in an IRA requires cash-secured puts (you must have the full cash to buy the shares in the account) and covered calls (you must own the shares). You cannot sell naked puts or calls. Most IRA custodians require Level 2 options approval for this strategy. Confirm with your broker before trading.