What is a Wheel Strategy in stock trading?

The Wheel strategy is an options trading strategy that involves selling cash-secured puts and covered calls on a stock with the goal of generating income and potentially acquiring shares of the stock at a discounted price. The strategy is also known as the Triple Income Strategy or the Sell-Put-Sell-Call strategy. Does The Wheel Strategy Work?

How many trades are involved in the options Wheel Strategy?

Three trades are involved in the wheel strategy. To implement the options wheel strategy, start by selling out of the money puts. With a put option, the owner of the option has the right, but not the obligation, to own the underlying security at the strike price on or before the expiration date.

What is the profit on the wheel trade?

The profit on the wheel trade was $438 on capital at risk of $6,200 which equates to a 7.08% return. This trade was started in September 2020 with the stock trading at 6.41. I initially sold the puts in-the-money because I wanted to be assigned. In December 2020, I was assigned at had to buy 200 shares at $7.50 or $1,500 in total.

Is a wheel trade safe?

Investors need be smart with position sizing and stock selection in order to improve the level of safety. The wheel trade is not safe if traders take positions that are too large for their account, or trade high risk stocks. The wheel strategy is best done on ETF’s and blue chip companies to improve the level of safety.