Overview of the wheel

1. Start by selling a put, in this case, you should consider a strike price closer to the current price. Since puts are exercisable when the price is below the current price, I usually aim for 1 or 2 strike prices down. Even in the wheel, your goal should be to not get assigned right away or be too far in the money.
2. At expiration, one of two things can happen:
   1. If the price is below the current price, you will be assigned on Friday (expiration date) and in some cases a day or two before is the option is really far in the money. E.g. You sold a put for $50 and the current price is $35, you might get assigned mid-week if it’s expiring this Friday.
   2. If the price is out of the money, for puts, the strike price is above the current price at market close on Fridays, then you’ll keep the initial premium and not be assigned.
3. In the case you’re assigned, you start the other half of the wheel.
4. Look for a strike price above the average price you paid and possibly 1-2 weeks away. If the premium is too low for your strategy, go out 1 or 2 months.
5. When your strike price is hit and you’re okay selling the shares at that price, you will sell and go back to step 1 of the wheel.

For selling puts or calls

• Consider companies only larger than $1B market cap, smaller ones will either have a very cheap stock price with no volatility or will not be very good businesses and you could be left holding the bag for too long.
• Options trade at the quarterly, monthly, weekly, and daily cadence. The more volume a ticker has, the more likely it’ll have granular options available. For example: SPY has daily options for every weekday the market is open and everything longer than that. But something like RIVN only goes down to weeklies. This is important to consider for wheeling.
• If you’d like to not get assigned, go for options that are around the 0.25-0.30 Delta or less range. The farther you move away from Delta 1, the less likely the option will be in the money at expiration. These are always calculations based on the current stock price and DTE, not predictions.
• No pharmaceuticals or Chinese companies
• Consider stock prices between $10-50, at the top end I’d say stock prices of $100-125
• Aim for a 0.5% to 1% premium, meaning if you bought 100 shares at $15, look for an option premium of around $0.15 so you’re getting $15 for selling that. If you’d like to lock in a premium like 5-10%, you’ll want to go further out for expiration.
• Try not to sell options for the week of earnings for that stock, usually this could result in a bad play

For selling puts (you are willing to buy the stock) also called a cash-secured put

• Consider only stocks that you’re okay holding long term
• Try to sell puts on red day (stock’s down), this will give you some IV premium
• Roll puts only when you’re too far in the money and would like to not get assigned at the strike price.

For selling call options (you own the shares), also called “selling covered calls”

• Consider companies that are trading at or near all time high prices so you’re more likely to sell calls at strike prices the stock won’t even touch.
• Sell on green days, stock price is moving up or has moved up a lot for the day. Use weekly and monthly charts to inform yourself if this is the beginning of a climb or plateauing or about to decline (this will come with practice).
• Roll up and out if you’d like to hold on to the stock, up in price and out in days to expiration. Only roll if you’re able to roll with a credit.

Recommended stocks to start wheeling

• SOFI, bank with decent volatility
• RIVN, EV company with good potential
• ABR, a real-estate stock that pays a dividend too so good to hold for CCs
• ACHR, an aviation company that has price swings between $8-12 pretty often

More advanced stocks for hyperwheeling

• HOOD, robinhood–pricier and volatile
• SOXL, don’t recommend unless you’re ready for 10% price swings within a week, this is a leverage ETF that amplifies gains/drops for semi-conductor companies
• NVDA, expensive but highly volatile week to week, can get decent premiums form this one

Terms

• Strike price: specific price for the stock at with an option is bought/sold
• Premium: money you earn/pay when selling or buying an option, the premium is always multiplied by 100 so something listed as $1.25 is really $125.00 for on contract
• Expiration: last day to trade/exercise an option, sometimes you’ll hear me say DTE or days to expiration b/c it’s relative like “a month out” or “next week”
• In the money (ITM), any strike price that’s in the exercisable range
• Out of the money (OTM), a strike price that’s outside the exercisable range, for calls this is a price above the current price, for puts it’s below the current price.
• At the money (ATM), rarely used to mean the current price is the same as the stock price but more to say “closer to the current price”
• Exercise an option: when you’ve bought options you can exercise them, exercising means you have to pay money to buy them at the strike price your option contract was set at, so if the current price is $105 and you bought a call at $100, you can pay $10k for shares that will be instantly worth $10.5k
• LEAPs: a longer dated option, usually starting at the next January’s expiration. These aren’t necessary for trading the wheel but are good to know about. They’re only called LEAPs but in practice are just really far out expiration dated options.
• Being assigned: when you’ve sold options your brokerage will use the term “Put Assignment” or “Call Assignment” to mean that you’ve been assigned the shares due to the option being in the money. Sometimes people will refer to call options being assigned as being “called away”.
• Rolling: a 2-in-1 strategy that allows you to buy an option you’ve sold and then at the same time sell another one. This is very useful in cases where you have $0 buying power in your account but need to roll to avoid being assigned.
• Options collateral
  • When writing puts, the money you’ll need to buy the shares is the collateral. So usually the strike × 100.
  • When selling calls, the collateral is the shares you’re putting up to be able to sell the contract.
  • When buying options, there’s no collateral required
• The Greeks: these are calculations shown to you to help you make a decision based on each. For the majority of cases, you’ll only need to worry about the following two but it’s good to know the others (from the internet):
  • Delta measures how much the price of an option is expected to change for a $1 change in the price of the underlying asset. (More importantly, it will also tell you how sensitive the option is to price changes, the closer they are to the strike price, the more the option’s price will change too) Delta’s always from +1 to -1, and usually you’ll hear me refer to it as “point 3 delta” to indicate a 0.30 delta but it could be side of 0.
  • Theta measures how much an option’s price will decrease per day, all else being equal, as time passes. Again also +1 to -1. (This is useful for figuring out how quickly the option will go to $0.00) The decaying effect is referred to as time decay or theta decay. It accelerates as the option gets closer to expiration.
• Implied Volatility or IV: how volatile a stock is, this is one of the most important things to look at when trading options. It essentially acts as a multiplier on the options pricing. The more volatile a stock, the higher the IV will be, and thus you’ll get more premium for an option.
• Hyperwheel: a very aggressive buying and selling options strategy that targets very aggressive deltas, you’re very likely to get assigned and thus you can hold on to more premium from the options.
• CCs or Covered Calls: when you’re selling calls, it’s called a covered call b/c you need the contract to be covered by the shares you own.