← BeginnerLesson 24 · 5:05
The wheel: how does it work? (strategy)
Summary
You can walk through the wheel's four steps: sell a cash-secured put, hold the shares if assigned, sell a covered call, and start again if the shares are called away. You can add up a full cycle's premiums, share gain and total with plain arithmetic. You can show how one bad month changes the total, and you know the cash stays tied up the whole time.
Key terms
- the wheel
- A cycle that joins a cash-secured put and a covered call: sell puts until assigned, then sell calls until the shares are called away, then start again.
- cycle
- capital tied up
Check yourself
Answer each question to see why the right answer is right.
1. What are the wheel's steps, in order?
2. Month one: you sell the $95 put for $141 and are assigned at $95. Month two: you sell a $100 call for $93 and the shares are called away at $100. What is the cycle's total?
3. Same cycle, but XYZ finishes month two at $85 instead of $103. Where are you?
4. In month two you hold shares bought at $95 with a $100 call sold for $0.93. Where does that month's line cross the middle?
5. At a strike of $95, how much capital does the wheel tie up?
Finished the video and the quiz? .