Glossary · The Full Wheel System · W
Wheel strategy in plain English.
An options income strategy that cycles between two trades: sell cash-secured puts until you are assigned the stock, then sell covered calls on those shares until they are called away — and start again, collecting a premium at every step.
Track
The Full Wheel System
7 terms in this track
Taught in
The complete cycle
In the index
99 of 100
Filed under W
Connections
8
Related terms mapped below
01
The idea, in context
How to read the picture above and where the Academy teaches it.
Reading the illustration
The wheel’s four stops: premium is collected at the gold stops, shares change hands at the others.
In French: Stratégie wheel
Where it’s taught
The Full Wheel System
The complete cycle
“The complete cycle” introduces this term with worked examples, a quiz and the trades around it. The Academy is part of the YieldCove membership.
02
How it works in the wheel
Where this idea fits in the cash-secured put → covered call cycle.
Leg 1 — sell puts. Choose a stock you would own, sell a cash-secured put below the current price and collect the premium. Repeat while the puts expire worthless.
Leg 2 — own the shares. When a put is assigned, you buy 100 shares at the strike. Every premium collected so far lowers your cost basis.
Leg 3 — sell calls. Sell covered calls above your cost basis. Repeat while they expire worthless. When a call is assigned, the shares are sold, the cash returns and the wheel turns back to leg 1.
The wheel works best on stable, liquid companies you understand. Its income comes from selling time; its risk is the same as owning the stock.
Run your own numbers
Try your own stock, strike and premium in the free wheel yield calculator — no account needed.
Try it in the wheel yield calculatorRelated terms
03
Worked example
Illustrative numbers, before commissions and taxes. Not a recommendation.
One full turn on XYZ
- Day 0: XYZ at $52. Sell a $50 put for $1.20 → +$120. Collateral: $5,000.
- Day 30: XYZ at $49. The put is assigned: you buy 100 shares at $50. Cost basis: 50 − 1.20 = $48.80.
- Day 30: Sell a $52 call for $0.90 → +$90. Cost basis: $47.90.
- Day 60: XYZ at $53. The call is assigned: you sell at $52. Share gain: (52 − 50) × 100 = $200.
- Result: $120 + $90 + $200 = $410 on $5,000 in about 60 days — 8.2%. A cycle where the stock falls hard can instead take months and end with a loss.
The takeaway
Judge a wheel by the whole cycle, not by one expiration: total premiums plus share gain or loss, divided by the capital tied up and the days it was tied up.
04
Risks and FAQ
What can go wrong, and the questions traders ask most.
Risks to respect
- The stock is the risk. A falling stock leaves you holding shares worth less than your basis, sometimes with calls that pay too little to matter — the wheel of death.
- Upside is capped twice. Puts earn only their premium in a rally, and calls cap the shares at the strike.
- Concentration. One assignment can tie up a large share of the account. Size each wheel so a bad outcome does not dominate your portfolio.
- Annualized numbers flatter. A 2% monthly premium is not a 24% yearly return if one cycle in five ends in a loss.
Frequently asked questions
How much money do I need to run the wheel?
Enough to buy 100 shares of the stock at the put strike: $5,000 for a $50 strike. Spreading across several stocks needs several times that, which is why many beginners start with one lower-priced, liquid company.
Is the wheel strategy profitable?
It can produce steady income in flat or rising markets, but the result depends on the stocks you choose. Track every cycle — premiums, assignments and share gains or losses — to know your real return.
What is the difference between the wheel and covered calls?
Covered calls are one leg of the wheel. The wheel adds the cash-secured put leg, so you get paid while waiting to buy the stock instead of buying it outright.
What stocks work best for the wheel?
Liquid, profitable companies you would hold through a drawdown, with tight bid-ask spreads on their options. Avoid picking a stock only because its premium is high.
05
Connected terms
8 terms around this one — the words its definition uses, its lesson siblings and the terms that build on it.
- Used in this definition
- Same lesson
- Builds on this term
- Same track
06
Where to go next
Understand it, try it with real numbers, then track it for free.
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Educational only — not financial advice.