Wheel Options Strategy: A Long-term Approach for Investors

Jeremy BiberdorfBy: Jeremy Biberdorf

December 31, 2022December 31, 2022

Investors and traders are constantly looking for ways to profit from their stock ownership. There are many different types of income strategies that seek to maximize one’s stock appreciation and offer consistent returns.

One of these strategies is known as the “Wheel Options Strategy.” Offering a semi-passive income stream for traders who want to take advantage of market conditions while minimizing personal risk, the options wheel strategy is one of the more popular trading techniques for trading options.

In fact, it’s such a well-known technique that there are entire software solutions based upon this particular strategy. However, simply being popular or well-known doesn’t mean that a method will really help you maximize returns from the current market price.

In this short article, we’ll be taking a closer look at the Wheel Options Strategy: what it is, how it works, and the risks associated with this particular method that you should be aware of before attempting it yourself.

Learn More About Wheel Options Strategy

What is the Wheel Options Strategy?

The Wheel Options Strategy is a long-term technique that focuses on the “buy low, sell high” mentality. This option strategy begins when an investor sells a cash-secured put option, which allows them to receive premiums.

They will continue to receive premiums until they are assigned, providing them with a form of passive income. However, once the puts are assigned, they will now purchase and be holding 100 shares.

From here, the traders can sell covered calls. This allows them to make more income from their options contracts. Once the stock is called away, the shares will be sold at strike price, and the trader can reinvest their earnings in cash-secured put options (restarting the cycle).

Traders with a higher risk tolerance can use multiple put options to maximize their potential capital gains.

Who Can Use the Wheel Options Strategy?

The Wheel Options Strategy can be used by any investor who has enough capital to afford paying for 100 shares of stock in full. However, we wouldn’t recommend it to anyone who has just enough to cover the purchase.

As current stock prices are always subject to change, it’s possible that you may lose money if the stock price drops enough. For this reason, it’s important not to tie up all of your available funds in one strategy.

While trading options can certainly be a great form of additional income, it’s not the most reliable income. Traders who can’t afford to potentially lose all of their investments should stick to dividend-paying stocks instead, which provide a more consistent and predictable income.

The Risks of the Wheel Options Strategy

Like any other type of trading, using the Wheel Options Strategy isn’t without risk. Even if you’re only trading with high-quality stocks or your favorite stocks that you follow closely, it’s always possible that you’ll lose money as the stock moves.

It’s important to select individual stocks with the biggest upside potential. Since you’ll be required to purchase 100 shares of stock once the option prices are assigned, proper stock selection is key.

Once your cash-secured puts have been assigned, you’ll then need to sell covered calls. However, if the stock is called right away then any capital gains you make will be minimal.

In theory, using the option wheel strategy should generate consistent returns. However, the biggest risk with this strategy is losing nearly all of your money. Although unlikely, it is possible if a stock position falls too much.

Wheel Options Strategy: How to Get Started

On the surface, using the wheel option strategy can seem somewhat complicated. However, once you’re familiar with the techniques used in the wheel strategy, the entire process becomes a lot easier.

That said, your overall success is largely dependent on the stocks you pick, option prices, and how much option premiums you earn. Understanding how the process works is one thing, but successfully implementing it is another.

Fortunately, there are software solutions to help you with this! One such solution is PowerX Optimizer. Based entirely on the Wheel Options Strategy, this service offers users all the tools they will need to succeed.

PowerX is able to effectively scan through stocks, providing you with stock recommendations that fit your required metrics. This helps reduce the amount of time you’ll need to spend searching for suitable options. You can also use PowerX to execute live trades.

Additionally, the platform also offers a variety of educational materials including video lessons, eBooks, and physical books to help you take your options trading to the next level.

If you’re looking to maximize your efficiency and overall profitability using the Wheel Option Strategy, PowerX Optimizer can be an invaluable tool for your daily trading routine. To learn more about the platform (and take advantage of our exclusive Modest Money discounts), click here!

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Jeremy Biberdorf
Jeremy Biberdorf

About the Author:

Jeremy Biberdorf is the founder of Modest Money. He's a father of 2 beautiful girls, a dog owner, a long-time online entrepreneur and an investing enthusiast.

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